Improved Crude Oil Realizations Key For ONGC’s Prospects

Oil And Natural Gas Corporation (ONGC) Ltd’s performance for the quarter ended December bore the impact of lower realization in oil and gas business as well as in value-added products (VAP). The crude oil production and sales, however, have continued to rebound since the Centre eased lockdown-related restrictions.

However, the figures were not sufficient to pull up performance to year-ago levels. ONGC has almost reached last year’s production levels, in the case of crude oil from its operated blocks said the company. However, with crude production from joint ventures are still down 16.7% lower year-on-year, total crude oil produced at 5.632 million metric tonnes (MMT) fell by 3.3% year-on-year.

Total gas production too declined 5.9% year on year. ONGC said that the shortfall in gas production is primarily due to less offtake by customers due to pandemic. Net oil and gas sales stood in line with our estimate at 5.3mmt and 4.5bcm (billion cubic meters) respectively said analysts at Motilal Oswal Financial Services Ltd (MOFL). The oil sales while marked an increase of 1% year-on-year, the gas sales were down 6% y-o-y say, analysts.

Even as oil sales recovered, crude oil price realizations from nominated fields at $43.2 a barrel were 27.7 % lower year-on-year. The regular decline in global prices has also meant that gas prices on a gross calorific value basis at $1.79 per mmbtu (million British thermal units) were much lower than $3.23 per mmbtu in the year-ago quarter.

It was a significant weakness in realizations that meant that the company’s net sales at the standalone level were down 28% year-on-year, while adjusted net profit was down 67.4%. The improvement in realizations thereby holds the key for the company’s earnings prospects. Analysts at MOFL say that for ONGC, cash flow breakeven stands at $50–55/barrel for oil and $3– 3.5/mmbtu for gas.

On the positive side, the rising spot prices of gas, however, are driving some hopes on domestic gas prices, which are reviewed by the government ever six months, may see some upward revision from 1 April. Also, crude oil prices have remained firm.

Brent futures during the ongoing quarter have been trading above $50 a barrel levels even crossed $60/barrel levels recently. The hopes that this may lead to ONGC reporting better realizations during the ongoing January-March quarter is driving stock prices. The stock is up almost 5% in two trading sessions post results.

Improved Crude Oil Realizations Key For ONGC’s Prospects via @marketinvestor
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