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UPDATE 1-India's ONGC Q1 net falls 24.5 pct, lags estimates
July 29, 2010 / 12:36 PM / 7 years ago

UPDATE 1-India's ONGC Q1 net falls 24.5 pct, lags estimates

* Q1 net profit 36.61 bln vs mkt estimate 42.6 bln

* Higher fuel subsidies weigh on earnings

* ONGC says started talks with Petrovietnam for BP assets

* ONGC says gas price hike to add to qtrly revenue

* Shares close down 1.1 pct ahead of results

By Devidutta Tripathy and Pratish Narayanan

NEW DELHI, July 29 (Reuters) - Indian state-run explorer Oil & Natural Gas Corp (ONGC.BO) reported a 24.5 percent fall in first-quarter net profit, lagging estimates, as a rise in crude oil prices CLc1 meant it had to make higher subsidy payouts.

ONGC, which is looking to buy BP’s (BP.L) assets in Vietnam, posted April-June net profit of 36.61 billion rupees ($785.6 million), down from 48.48 billion rupees a year earlier.

A Reuters poll had forecast net profit of 42.6 billion rupees.

ONGC is required to partially subsidise the sale of fuel to state-run retailers, who sell fuel at state set, below-market prices, which affects its profit.

The government recently deregulated gasoline prices and has said it would free diesel prices as well, but clarity on the subsidy-sharing mechanism for other fuels is yet to emerge.

“Though the government has talked a lot about freeing prices, the mechanism by which the subsidy will be calculated has not emerged,” Sonam Udasi, head of research at IDBI Capital, said.

“Also, if oil prices go up again, then government intervention will start again,” he said.

India has asked state-run upstream firms to pay a subsidy of 66.91 billion rupees to retailers to compensate them for selling fuel at cheaper rates in the June quarter, an executive at Oil India (OILI.BO) said last week. [ID:nSGE66M08J]

ONGC’s subsidy share in the June quarter stood at about 55.16 billion rupees. In contrast, the company gave a discount of just 4.29 billion rupees on crude sales to state-run refiners in the prior-year quarter.


The company expects a hike in gas prices to add 15-16 billion rupees ($322-$343 million) to revenue a quarter, Chairman R.S. Sharma said on Thursday.

ONGC shares fell 1.1 percent to 1,242.50 rupees ahead of the results, while the broader Mumbai market .BSESN gained 0.2 percent.

ONGC and state-backed Petrovietnam are expected to submit a joint formal offer within weeks to buy BP’s stake in the Nam Con Son gas project, India’s oil secretary, S. Sundareshan, said on Tuesday. [ID:nSGE66R02M]

On Thursday, ONGC’s Sharma said the company has started talks with Petrovietnam to buy BP’s Vietnam assets.

ONGC is well positioned to buy the embattled UK firm’s 35 percent stake, worth $966 million by one estimate, in the offshore Vietnamese gas field in which it already owns 45 percent. Vietnam insists BP give priority to its partners in the project.

A deal would be a welcome change for India, which has been playing the underdog to China in the hunt for natural resources as the two Asian countries seek energy security to feed fast economic growth.

India’s Reliance Industries (RELI.BO) and Essar Group are talking to BP about buying its African retail assets that could be worth as much as $500 million, sources have told Reuters. [ID:nSGE66R0IH]

Reliance, India’s biggest listed company, increased its quarterly profit by almost a third on higher gas production, and is expanding overseas into shale gas. [ID:nSGE66R028] ($1=46.6 rupees) (Editing by Surojit Gupta)

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