ONGC’s PAT to take Rs 3,000 cr hit on falling gas price

ONGC’s PAT to take Rs 3,000 cr hit on falling gas price

State-run Oil and Natural Gas Corporation is likely to take a hit of around R3,000 crore on its profit after

tax (PAT) in FY17 owing to the 20% reduction in domestic gas price for the April-September 2016 period,

reports Siddhartha P Saikia in New Delhi. This is despite the company expecting a rise in its gas output by

at least 2 billion cubic metres or 9% in the current fiscal year.

AK Srinivasan, director (finance), told FE that when gas price drops by $1, the company’s top line would

reduce by R4,353 crore and bottom line by R3,917 crore.

The domestic natural gas price has dropped 20% to $3.06 pre million British thermal units (mBtu) for

April-September 2016 against $3.82 per mBtu in the previous six months (October 2015-March 2016).

The price of domestic natural gas is currently decided based on a formula approved by the Modi

government in October 2014, which is linked to select global indices.

To add to ONGC’s worries, its natural gas output has been falling for the past three years in a row (see

chart).

The government-owned firm is expected to see a substantial rise in natural gas output after completion

of its two prolific projects — Daman and KG-98/2 on the east coast.

Despite zero subsidy burden, upstream earnings look set to remain challenged due to weak net

realisations at $34 per barrel, down 37% year-on-year, leading to a sequential decline in earnings,

Morgan Stanley said in a April 7 note. In Q4FY16, the global financial services firm estimates ONGC to

report Ebitda (earnings before interest, taxes, depreciation and amortisation) of `8,000 crore, down 27%

year-on-year, while PAT is likely at `2,820 crore, which is a 28% drop on a year-on-year basis.

ONGC maintains that it could have also produced natural gas at the same rate as last year had some

unavoidable circumstances not come its way. Several reasons have been cited for a drop in gas

production including a fire at a GAIL (India) pipeline last year in East Godavari district of Andhra Pradesh,

which led to the shutting down of the east coast gas fields for more than four months. Also, ONGC has

to undertake safety repairs of a 42-inch gas pipeline at Hazira, do a maintenance shutdown at its Bassein

field and come to terms with a natural decline from existing fields.

https://www.financialexpress.com/article/economy/ongcs-pat-to-take-rs-3000-cr-hit-on-falling-gas-

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