The oil and gas sector is staring at “material” damage to its profitability in the September quarter owing to government imposed taxes, shrinking global refining margins and losses for fuel retailers.
Oil and gas companies under coverage at ICICI Securities are pegged to report a 32 percent year-on-year decline in operating profits for the September quarter while their earnings are set to slide 76 percent from the year-ago quarter.
While the sector reported strong earnings growth in the previous quarter, the government’s imposition of special excise duties on crude oil production as well as export of crude oil products have weighed on the performance.
For state-owned oil marketing companies, the limited ability to pass on higher oil prices to consumers will mean that they continue to suffer heavy marketing losses alongwith a decline in refining margins, which had an offsetting in the June quarter.
Brokerage firm Kotak Institutional Equities expects operating profits of upstream oil and gas companies to shrink 37-40 percent sequentially owing to 11-12 percent lower realization on the crude oil sold by them as compared to the June quarter.
Further, the government’s windfall gains tax will also reduce average realization of Oil & Natural Gas Corporation by as much as $28 per barrel in the September quarter on a sequential basis. “We expect volumes to remain muted, in line with recent trends,” Kotak Equities said in its preview note.
For the oil marketing companies, the continued lack of reflection of higher spot crude oil prices on pump prices are likely lead to sharp marketing losses.
“The three OMCs IOCL, BPCL & HPCL remain trapped in the quagmire of weak marketing losses and there is not enough traction in GRMs,” said ICICI Securities.
Gross refining margins for state-owned refiners is likely to slump 5.6-15.9 per barrel on a sequential basis with the state-owned refiners likely to report net losses of Rs 21,270 crore, ICICI Securities said.
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