UPDATE 2-India's ONGC Q3 net up, but subsidy worries linger
* Net profit 30.5 bln rupees vs forecast 47.6 bln
* Net proceeds after subsidy payout rise to $57.69/barrel
* Oct-Dec subsidy cost 35 billion rupees vs 49 bln yr ago
* Subsidy uncertainty to weigh on results, shares
* Shares fall 2 pct ahead of results
(Adds further details, analyst's comments, background)
MUMBAI/NEW DELHI, Jan 21 (Reuters) - India's Oil & Natural Gas Corp (ONGC) (ONGC.BO) posted its second straight rise in quarterly profit on higher oil prices, but uncertainty surrounding subsidy payments may keep investors shy of the state-run explorer.
The group is required to partially subsidise the sale of fuel to state retailers, which sell petrol and diesel at government-set prices below the market rate, affecting its earnings.
Higher oil prices in the December quarter than a year earlier lifted ONGC's net proceeds after subsidy payouts, helping the company's net profit rise 23 percent.
But ONGC operates under a complex government subsidy rule which means it would have to bear a bigger burden if oil prices rise further as the global economy recovers, hurting results in future quarters.
"It does not make sense to venture out into the stock until there is more clarity on the government policy regarding subsidies," said Deepak Pareek, an oil and gas analyst at Angel Broking.
Net proceeds after subsidy payouts soared 70 percent to $57.69 a barrel in its fiscal third quarter ended December from $33.99 a year earlier. [ID:nBMA006820]
ONGC said its subsidy cost in the quarter was 35 billion rupees ($761 million), compared with 49 billion a year earlier.
It reported a net profit of 30.5 billion rupees for October-December, up from 24.8 billion a year earlier and compared with an average forecast of 47.6 billion in a Reuters poll. [ID:nSGE60H0I6]
A lack of clarity about the government's subsidy rules means analysts estimates for ONGC are often disparate.
"When oil prices stay at about $65 a barrel, ONGC tends to benefit, but anything more than that means the subsidy burden will get much higher," Pareek said.
Oil fluctuated below $78 a barrel on Thursday. [O/R]
Ahead of the results, shares in ONGC, India's second-most valuable company with a market worth of $56 billion, fell 2 percent to 1,140 rupees in a Mumbai market .BSESN that shed 2.4 percent.
The shares had risen 0.5 percent during the December quarter, underperforming a 2 percent rise in the main index .BSESN.
ONGC will invest 21.6 billion rupees in a field off India's west coast, its chairman said. "The peak envisaged oil production from the D1 field is expected to be about 36,000 barrels per day during 2010-13," R.S. Sharma said.
Yet the company is likely to fall short of its 2009/10 oil output target of 25.76 million tonnes by 1 million tonnes, he said. "Production is declining faster than estimated ... Production is definitely under a lot of pressure."
Crude oil production fell 3 percent in the December quarter to 6.7 million tonnes, while natural gas output rose marginally to 6.45 billion cubic metres. [ID:nBMA006820]