Hazira shutdown, higher operational staff cost seen as reasons

Our Bureau

New Delhi, Oct. 19

Despite increase in subsidy discount to state-owned refiners and floods in Gujarat, Oil & Natural Gas Corporation was able to maintain a marginal increase in its net profit for the second quarter of financial year 2007. The company's net profit stood at Rs 4,174 crore (Rs 4,138 crore) during this period. This was, however, lower than the market predictions of about Rs 4,300-Rs 4,400 crore net profit. Trade pundits

had predicted that despite an expected rise in ONGC's subsidy share and decline in gas volumes following disruptions at Hazira plant, the company would do better. The company's stock price also fluctuated between the intra-day high of Rs 1,179 and low of Rs 1,148.60 and finally closed at Rs 1,155.40 at the Bombay Stock Exchange.

Causes for low performance

Asked about the performance of ONGC being below expectation, the ONGC Chairman, Mr R. S. Sharma, said some of the reasons included the revenue loss because of the shut-down of the Hazira plant, increase in operational staff cost and higher provisioning as prudent accounting procedure for meeting the claims of Director-General of Hydrocarbons on ONGC's New Exploration Licensing Policy (NELP) blocks.

The company's turnover (net of subsidy discount) for the quarter under review stood at Rs 14,146 crore (Rs 12,728 crore). While the company's crude production in the second quarter rose to 6.39 million tonne from 5.81 mt , the natural gas production declined to 5.18 billion cubic metre from 5.50 bcm.

During the first six months of the current fiscal, the company registered 22 per cent increase in revenue and 11 per cent increase in net profit, despite 78 per cent increase in subsidy discount. According to ONGC, its sales revenue for the first half stood at Rs 28,823 crore (Rs 23,682 crore). The net profit for the first six months was up at Rs 8,293 crore (Rs 7,457 crore). During the period, the company's crude production went up 4.6 per cent to 12.86 million tonnes (12.29 mt).

ONGC's natural gas production was 0.03 per cent more than the target for the first half of the fiscal at 11 bcm, though this was marginally lower than the performance in the same period last year. The natural gas production saw a dip due to floods affecting operations at the Hazira gas processing plant. The plant was shut down for 10 days affecting a production of 0.55 bcm. The financial implication of the shut-down was Rs 485 crore, the company said.

Besides, the company's subsidy discount went up to Rs 10,152 crore (Rs 5,704 crore) for the first six months, with the discount extended in the second quarter alone standing at Rs 5,032 crore (Rs 2,876 crore). With the softening of crude prices the company is expected its subsidy burden to be lower in the third quarter.

(This article was published in the Business Line print edition dated October 20, 2006)
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