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ONGC Q3 Performance Analysis: Impact of Lower Crude and Gas Prices on Profitability

9th February, 2024| By Business Desk
Oil Rig
Oil Rig | Credit: Wallpaper Flare
  • ONGC is expected to report its earnings for the third quarter ending December 2023, with analysts projecting a decline in net profit due to lower crude realisation and GST provisions on royalties.
  • Anticipated net profit stands at Rs 9,115 crore, reflecting a 14 percent year-on-year decrease and an 8 percent sequential decline.
  • Factors contributing to the projected decline include a 0.5 percent decrease in crude production, a 1.4 percent decrease in gas production, and a 2 percent reduction in net crude realisation.
  • Analysts foresee a 9 percent EBITDA loss compared to the previous quarter, with additional concerns regarding an 18 percent rise in recouped costs.
  • Despite expectations of subdued numbers, analysts suggest ONGC’s performance in the third quarter of FY23 will be stable, albeit impacted by weak crude and gas price realisations.

Oil and Natural Gas Corp Ltd (ONGC), a state-run oil marketing major, is anticipated to report its earnings for the third quarter ending December 2023 on February 10. Analysts project a decline in net profit, attributing it to lower crude realisation and provisioning for GST on royalties.

The estimated net profit for ONGC stands at Rs 9,115 crore, representing a 14 percent decrease year-on-year and an 8 percent decline sequentially. Net sales are expected to remain flat compared to the previous quarter and decrease by 9 percent compared to the same period last year, amounting to Rs 34,631 crore. Similarly, EBITDA is forecasted to plummet by 10 percent year-on-year and remain stagnant quarter-on-quarter.

The company may face a decline in crude production by 0.5 percent and gas production by 1.4 percent, alongside a 2 percent reduction in net crude realisation. This could result in a projected 9 percent EBITDA loss compared to the previous quarter. Analysts at CLSA anticipate an 18 percent rise in recouped costs, potentially amplifying the decline in net profit by 13 percent quarter-on-quarter and 19 percent year-on-year.

Kotak predicts a 1 percent increase in crude oil sales to 4.7 million metric tonnes and a 1 percent increase in natural gas sales to 4.1 billion cubic metres, while witnessing a 3 percent decrease year-on-year. The gross crude realisation is expected to decline by 3 percent to $82.6 per barrel, whereas the net realisation, considering royalties and taxes, is estimated to rise by 3 percent to $52 per barrel, with lower windfall taxes offsetting reduced Brent prices.

Nuvama forecasts a substantial 12 percent year-on-year EBITDA decline for ONGC due to lower crude and gas prices. Brent prices observed a 7 percent annual decrease and a 4 percent sequential decline in Q3FY24. Additionally, APM gas prices declined by 24 percent to $6.5/mmbtu based on the Kirit Parikh committee recommendation from April 2023. Anticipated declines include 3 percent year-on-year and 4 percent quarter-on-quarter in oil and gas production across segments.

The overall sentiment among analysts suggests subdued yet steady numbers for ONGC in the third quarter of FY23, largely influenced by weak crude and gas price realisations. The average estimate of four brokerages indicates a potential 13 percent year-on-year decline in net profit, with a marginal 1 percent sequential drop. Similarly, revenue from operations for the third quarter is anticipated to decrease by 9 percent year-on-year, as per the average estimate of four brokerages.