RPT-PREVIEW-Margin squeeze to hit Reliance; ONGC profit to rise

Wed Apr 22, 2009 9:52pm EDT

 (Repeats to fix crack margin link)
 * What: Jan-March earnings at India's top oil companies
 * When: Reliance (Thursday), ONGC (tbc)
 * Reliance net to drop for 2nd qtr as margins hit
 * ONGC profit seen up 31 pct on no subsidy burden
 By Ami Shah
 MUMBAI, April 22 (Reuters) - India's largest energy group,
Reliance Industries Ltd (RELI.BO), is expected to report a
second consecutive drop in quarterly profit as the global
economic crisis squeezed demand and shrank refining margins.
 Reliance, valued at $54 billion, should show significant
growth in coming quarters from gas sales it started pumping
this month from its deep-sea field off India's east coast.
 By the year-end gas output from the Krishna-Godavari Basin
is expected to reach a peak production of 80 million standard
cubic metres a day -- a level the upstream regulator has said
can be sustained for six years. [ID:nDEL327402] [ID:nDEL459719]
 "The major value driver going ahead for Reliance is the E&P
(exploration and production) business," said Deepak Pareek, an
analyst at Angel Broking, adding the gas sales from the Bay of
Bengal field would boost revenue and earnings.
 "They have started exploration in prospective blocks
recently. So, any new discoveries could lead to reserve
accretion and in turn boost the valuation of the company," he
 Reliance will also benefit from a new 580,000 barrels per
day (bpd) refinery, built by unit Reliance Petroleum RPET.BO,
which was commissioned last December. The company is in the
process of absorbing the subsidiary, in which it owns 70
 Last week, the company surrendered export status and tax
breaks on its old 660,000 bpd refinery due to a global slump in
demand, freeing it up to sell petrol and diesel in its home
market and to local state marketing companies.
 Its refining margins are expected to have fallen to $8-$12
a barrel in the March quarter from $15.5 a year earlier,
tracking the decline in Asia's benchmark Dubai crack margin
<REF/MARGIN1>.     The Asian benchmark Dubai crack margin
averaged $5.6 per barrel in the quarter versus $7 a year ago,
data from Thomson Reuters showed.
 Reliance's refining margins are higher than the Asian
benchmark as its refinery is capable of processing cheaper
heavy crude to produce high value products.
 January-March net profit is expected to have dropped nearly
8 percent from a year ago, after dropping 9.8 percent in
 State-run explorer Oil & Natural Gas Corp (ONGC.BO) is set
to report a 31 percent rise in January-March profit as lower
crude prices meant it did not have to share the subsidy burden
of state-run oil marketing companies, analysts said.
 India has a government-controlled fuel pricing regime,
under which state-run producers such as ONGC are forced to
subsidise state oil marketing companies to sell products at low
prices to consumers.
 "ONGC's earnings will be limited due to a decline in crude
prices in FY10 on a year-on-year basis," Edelweiss Securities
said in a note this month.
      (bln rupees)          (vs yr ago)  PERFORMANCE
 Reliance   36.1     28.1-40.8    -7.7        +23.8       17.2
 ONGC       34.5     26.8-42.7   +31.2        +16.8       11.2
 NOTE: Estimates compiled from: Prabhudas Lilladher, Goldman
Sachs, Motilal Oswal, K R Choksey, Batliwala & Karani, J P
Morgan, ICICI Securities, IIFL, Religare, Morgan Stanley,
Edelweiss, CLSA, Anand Rathi, Macquarie, Sharekhan, Angel
Broking, India Infoline.
 (Editing by Ranjit Gangadharan & Ian Geoghegan)

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