(Adds detail, company exec quotes, analyst comment)
By Devidutta Tripathy and Nidhi Verma
NEW DELHI, June 24 (Reuters) - India’s Oil & Natural Gas Corp (ONGC.BO) reported an unexpected 16 percent drop in March quarter profit, but was bullish on the outlook for the current fiscal year partly because of possible deregulation of fuel prices.
The state-run firm’s profits fell as it helped subsidise cheap retail fuel prices and as it set aside 8.6 billion rupees ($175 million) as a provision for a matter under arbitration.
”Last year numbers were depressed for very specific reasons, Chairman and Managing Director Sharma said.
“So, I do feel that those negative pressures will not be there to that extent during the current fiscal and I see every reason for the current fiscal year result to be better.”
India’s re-elected government has said it would look at deregulating fuel prices. Currently, state-run producers such as ONGC are forced to subsidise state oil marketing companies to sell fuel products at below-market prices to consumers.
“It is very much visible that the reformist agenda (of the government) is very much vocal,” said Sharma.
R. S. Butola, managing director of the overseas arm ONGC Videsh, said recent estimates showed reserves of Russia-focused Imperial Energy, which ONGC bought last year, were at 946 million barrels, higher than earlier estimates of 920 million barrels.
He declined to comment on whether ONGC was interested in Addax Petroleum AXC.TO AXC.L. On Wednesday, China’s Sinopec Group agreed to buy Addax for about $7.2 billion. [ID:nBNG477261]
Ahead of the results, shares in ONGC, India’s second most-valuable company with a market capitalisation of $45 billion, rose 2.4 percent in a market that rose 0.7 percent.
“Currently, ONGC is overpriced based on its production profile,” said Amit Shah, a research analyst with BNP Paribas Securities. Shah currently has a reduce’ rating on the stock.
“The structural flaw with the company is its production inefficiency,” Shah said.
The oil and gas explorer said net profit fell 16 percent to 22.07 billion rupees in the March quarter.
In April, a Reuters poll found ONGC was expected to report a 31 percent rise in net profit to 34.5 billion rupees, based on an assumption it would not incur subsidy costs.
In late May, the company said it would have a subsidy bill of 8.52 billion rupees for the quarter, although that was down 90 percent from a year earlier. [ID:nBMA002953]
Turnover in the quarter declined 12 percent to 138.15 billion rupees, and crude oil production in the quarter fell to 6.48 million metric tonnes from 6.95 mmt a year earlier.
ONGC’s gross realisations more than halved to $47.85 per barrel in the quarter as global crude prices fell, and net realisations fell to $43.40 per barrel from $49.66 a year ago.
Net profit for the year 2008/09 declined 3 percent to 161.26 billion. (Writing by Ami Shah; Editing by John Mair)