ONGC and Oil India Q4 preview: Why the gas sector can add steam to results

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Globally, energy producers have been the biggest beneficiaries of supply disruptions and an unprecedented rise in energy prices in 2022. In India, although crude oil is mostly imported, ONGC and Oil India are the main domestic producers, contributing only a fifth of the country total oil requirements. The remaining balance is imported, with minor contributions from other players.

With regard to gas, about half of the need is produced locally, while the rest is imported. Indian Oil and Natural Gas Corporation, Oil India and Reliance Industries are major gas producers in India. Gas prices in India witnessed a massive increase over the past year.. Domestic natural gas price increased from $2.9 per mmbtu in Oct 2021-March 2022 to $6.1 per mmbtu in Apr-September 2022, and also rose to $8.57 per million British thermal units. mmbtu in October 2022 – March 2023.

Oil India and ONGC which will announce their fourth quarter results for FY23 this week will report record high gas prices in FY23.

India’s oil: powered by gas

Thanks to the skyrocketing gas price, India oilThe gas segment, which accounts for 30 per cent of consolidated profits, recorded an operating profit of Rs. 1,091 crore on revenue of Rs. 1,660 crore, implying a huge margin of 66 per cent for the October-December 2022 period. This is in contrast to Loss of ₹ 107 crores on revenue of ₹ 514 crores in October-December 2021. For the 9 million period of FY23, the gas segment’s profit was a whopping ₹ 2,029 crores as compared to ₹ 540 crores in the previous year. We expect the company to report similar earnings in the gas segment in the fourth quarter of FY23 as well. Given that crude oil also remained in the $75-85 per barrel range for the quarter, the Numaligarh refinery and crude oil exploration business should also continue to report good performance in Q4 FY23.

in the same vein, ONGC Which benefited from strong gas prices in India over the past two quarters, should continue to show that in the January-March 2022 quarter results as well.

However, the realization of Crude Oil in the period January-March 2023 may be slightly lower for the oil and natural gas company compared to the same period last year as crude oil prices rose from levels of $80 per barrel to more than $100 per barrel (Brent Crude) between January and March. 2022. Also, the effect of the windfall dividend tax, although not material, will be present in the performance of the fourth quarter of FY23. Windfall income tax on crude oil was reduced to a tenth in January 2023, compared to July 2022 .

ONGC as a company does not provide a breakdown of its crude oil and gas exploration business, but instead reports revenue and earnings onshore and offshore. In the nine-month period ending December 2022, profitability in the offshore segment declined from 53.7 percent in the October-December 2021 period to 48.3 percent in the October-December 2022 period. However, onshore margins improved by about 3 percentage points during this period. period to reach 17.2 per cent.

However, for the fourth quarter of the first quarter of fiscal 2013, we expect the gas segment to partially offset the underperformance of our oil exploration business. The back of envelope calculation reveals that for every $1 per MMBtu, the quarterly increase in revenue and profit would be Rs 1,807 crore. This assumes quarterly sales of 5.5 bcm.

Until April this year, the government will announce domestic gas prices twice a year, and the price was derived using the gas price and consumption in many countries such as Canada, Europe, Russia and China.

However, at the start of this fiscal year, the Treasury approved new pricing standards recommended by the Keret Barrick Commission, where the price of gas will be 10 per cent of the price of India’s basket of crude oil for the previous month, with a minimum price of US$4 per million BTUs. British and US$6.5 cap per million British Thermal Units for gas from old wells, also called percolation fields.

HPCL: Pull to boost

Also, refining business – HPCL – It posted a strong performance for the quarter, with a whopping 80% growth in net profit to ₹3,600 crore. ONGC’s 54.9 percent stake in HPCL, which was a drag on 9 months of fiscal ’23 performance, will drive up the March 2023 quarter’s consolidated performance.

we’ve got Buy rating on india oil stocksas we are positive about the expansion of the Numaligarh refinery and the potential upside from that, in addition to the new gas pricing policy which will make earnings stable. We have accumulated recommendation for ONGC stock Because we believe that the new gas pricing policy will bode well for the company over the next two to three years