Top India Explorer’s Profit Retreat Continues on Weaker Oil

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Top India Explorer’s Profit Retreat Continues on Weaker Oil

Debjit Chakraborty

(Bloomberg) -- Oil & Natural Gas Corp.’s net income declined for an eighth straight quarter as a plunge in oil prices last year hurt the state-run explorer.

Net income slumped about 67% to 13.78 billion rupees ($189.4 million) in the three months ended December from a year earlier, the company said in an exchange filing Saturday. That missed the 22.9 billion-rupee average of estimates compiled by Bloomberg.

Revenue for India’s biggest explorer contracted 28% to 170.24 billion rupees.

Key Insights

Prices of Brent crude, a benchmark for ONGC’s oil, dropped almost 28% year-on-year during the quarter. Also, rates of most of its natural gas, decided by the Indian government, dropped 45% to below the production cost.Shrinking profits, coupled with lower energy prices, weakened its cash flow from operations. It poses a challenge for the company’s investment plans to expand oil and gas output and make inroads into clean energy. Most of ONGC’s current output is from matured fields.The company, which used to be India’s most profitable enterprise until a few years ago, is investing more than 590 billion rupees in 15 projects. ONGC needs to see $40-$45 a barrel oil price for its basic capital expenditure requirements, its finance chief Subhash Kumar said in December. The company is re-looking at its targets for 2030-2040 amid the coronavirus pandemic and the energy transition in general.While a weaker rupee against the dollar helps boost ONGC’s sales when converted into the local currency, it also increases interest payments on its dollar-denominated debt. The average exchange rate slipped 3.6% in the quarter compared with the previous year.

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The company earned an average $43.2 per barrel on oil sold during the quarter, 28% less than a year ago. It sold gas at $1.79/mmBtu.Total oil output fell 3.3% from a year earlier to 5.63 million tons, while gas production declined 6% to 5.8 billion cubic meters, according to a company statement.The company’s profit has been falling year-on-year since the January-March quarter of 2019. It reported a quarterly loss in the fourth quarter of last year.ONGC’s board on Saturday approved proposals to acquire a 5% equity in Indian Gas Exchange and create a new unit to focus on its gas and LNG businesses.

(Updates to add details from earnings statement)

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