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Often, the blame for a poor show by public sector oil explorers is laid at the door of that old bugbear - higher subsidy burden. But the June quarter results of ONGC and Oil India show that subsidy burden had a relatively minor role in the near 35 per cent dip in profits for both companies. Rather, it was poor production and weak pricing combined with higher costs that dragged down the oil explorers’ performance.
Consider the numbers. ONGC’s subsidy burden in the June quarter increased only around Rs 276 crore compared with the same period last year. Yet, its profit fell by Rs 2,062 crore. In the case of Oil India, profit fell by Rs 321 crore, despite subsidy burden reducing by Rs 33 crore.
A poor operational performance took a toll on the profits of both companies. ONGC’s oil output fell around one per cent in the June quarter compared to the year-ago period, while gas production was lower by 3.7 per cent. ONGC has been struggling with its domestic output for some time now. Also Oil India, which has been doing better on the production front, saw its output in the June quarter fall around one per cent. The company’s troubles due to civil unrest in its main area of operations (the North East) seem to have spilled over to the June quarter.
It did not help that crude oil price in the June quarter was lower than a year ago. The gross realisation of ONGC and Oil India decreased to around $102-$103 a barrel from $109-$110 a year ago. While gross realisations fell, the Government kept the per barrel subsidy burden nearly the same as last year. Hence, the net realisation of ONGC fell to $40.17 a barrel (from $45.91) and that of Oil India declined to around $46 a barrel from $54 a year ago.
On the cost front, both the companies saw an increase in write-offs of exploration cost. ONGC’s bottomline was also impacted by an additional cost of Rs 1,611 crore due to change in the employee retirement benefit plan.
anand.k@thehindu.co.in
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