Tale of contrasts for explorers, refiners, gas utilities

Anand Kalyanaraman | Updated on January 27, 2018

Gas   -  Reuters

While crude price crash batters upstream firms, high margins help refiners

It’s been a tale of contrasts in the oil and gas sector over the past year. The hydrocarbon explorers have been struggling, refiners have had a field day and gas utilities are somewhere in between.

The rout of crude oil to 12-year lows has battered upstream companies ONGC, Oil India and Cairn India — their profits for the nine months ending December 2015 fell 5-68 per cent year-on-year. While the government-controlled ONGC and Oil India suffered relatively mildly due to a cut in their subsidy burden, Cairn India, a pure play crude oil firm, bore the brunt.

It did not help that the cess on crude oil remained at about $9 a barrel despite the crash in crude price.

Oil refiners, on the other hand, benefited from robust demand for petroleum products and favourable market dynamics.

This saw their gross refining margins (GRMs) — the difference between the price of their product slates and the cost of crude oil — go up last year.

Public sector oil marketing companies Indian Oil, BPCL and HPCL also benefited from pricing reforms such as diesel decontrol and direct benefit transfer of LPG subsidy, which reduced their under-recovery burden sharply.

With their fortunes turning around dramatically, the earnings of these companies in the nine months to December 2015 grew manifold (2 to 11 times year-on-year).

Record profit

Private sector behemoth Reliance Industries posted a record profit, buoyed primarily by the refining segment. The company’s high complexity refineries and prowess in crude oil sourcing helped it post multi-year high GRM, more than offsetting weaknesses in the exploration segment.

For the gas companies, it’s been a mixed bag. City gas distributor Indraprastha Gas was troubled by weak volume growth while transmitter GAIL (India) was bogged down by under-utilised pipeline capacity and margin pressure in its petrochemicals business. This showed up in the 10-40 per cent year-on-year dip in profits of these companies for the nine months ended December 2015.

Gas importer Petronet LNG, despite high depreciation and interest cost due to its under-utilised Kochi terminal, benefited from higher volumes of cheap spot LNG. This helped it grow its profit 16 per cent year-on-year in April-December 2015.

Gas firms should benefit from recent developments such as the contract renegotiation with Qatar’s RasGas, the Supreme Court verdict allowing GAIL to continue with pipeline laying in Tamil Nadu, and the odd-even rule and crackdown on diesel vehicles in Delhi.

Stock price movements

The varying fortunes of the oil and gas companies are reflected in their stock price movements.

The upstream stocks are down 34-49 per cent over the past year while the big refiners have gained up to 12 per cent. Standalone PSU refiner CPCL more than doubled from the lows of last year. Indraprastha Gas and Petronet gained 20-37 per cent on positive news flow, while GAIL slipped nearly 21 per cent.

Published on February 23, 2016

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