The Hindu Business Line : Fall in crude prices, subsidy bill likely to hit ONGC profits

, ONGC is finding it difficult to maintain profit growth in the third quarter of 2005-06, courtesy a sharp decline in profitability following a fall in crude prices and production coupled with a heavy subsidy bill.

The company recorded a net profit of Rs 3,493 crore in the third quarter of 2004-05.

Exploration and production had managed to record a 44 per cent growth in profit (Rs 3,318 crore) in the first quarter and 24 per cent growth (Rs 4,138 crore) during the second quarter of this fiscal.

The growth was recorded even after footing heavy subsidy bills of Rs 2,876 crore and Rs 2,830 crore respectively. ONGC paid a total subsidy of Rs 4,104 crore during 2004-05.

"As things stand now, it seems difficult to register growth in profit in the third quarter," an ONGC official said, adding that the company's plea for reduction in subsidy bill did not find favour with the Union Petroleum and Natural Gas Ministry.

"We have presented our case to the Petroleum Ministry. However, it is indicated to us that we may have to continue sharing subsidies of close to Rs 3,000 crore towards under-recoveries by the oil marketing companies in the third quarter," the official said.

On the revenue side, production has dropped as a fallout of the Mumbai High North fire. Though gas production has been normalised, recovery of the crude oil production rate is delayed and may be normalised only at the end of this fiscal.

The drop in production comes at a time when the profit margin is under pressure due to 19 per cent drop in crude prices - from a peak price of $70.85 per barrel on August 30 to $57.53 per barrel on November 10 at the New York Mercantile Exchange (NYMEX).

The fall was prominent between mid-October and early November. Crude prices have been hovering around $58 per barrel since November 10.

ONGC's annual net profit is affected by Rs 820 crore for every dollar's variation in crude prices on same volume of production.

"We had to take a hit of low prices for almost two months in the third quarter. Since production was also lower during the period as against the corresponding period last year, profitability was substantially affected," the official said.