See subsidy burden of Rs 8100 cr in Q4: Oil India

Higher subsidy burden has impacted net realisation in the December quarter earnings of the company, says T K Ananth Kumar, Director- Finance, Oil India Limited. He sees no respite as the fourth quarter's subsidy burden is likely to be around Rs 8100 crore.

Oil India's net profit stood at Rs 940.3 crore and net sales at Rs 2,413.6 crore year-on-year (YoY). Despite the soaring net profit- nine times that posted in the previous year, the company posted some disappointing realisations.

"As compared to Rs 4,478 crore what we paid last year, this year in nine months we paid Rs 6,042 crore. So, the higher subsidy burden has impacted our net realisation," says Kumar. 

Also read: Coal India Q3 profit seen up 34% QoQ to Rs 4130 cr

However, poor realisation numbers are not making OIL any less confident. Kumar is bullish of improving gas production that was affected by external disturbances. "We are likely to take action and improve the production from now onwards," says Kumar optimistically. He has estimated next year's crude oil production at 3.95 million tonne and 2.74 billion cubic meter gas production.

Below is the edited transcript of Kumar's interview to CNBC-TV18.

Q: There was some disappointment around the kind of realisations that you have posted this time around. Give us any sense of what Oil India hopes to do in terms of realisations over the next few quarters?
A: The gross margins during the nine months has been at USD 109 and after giving a subsidy of USD 56, the net realisation has been USD 53 in the nine months. So, there is a slight impact on account of the subsidy burden. As compared to Rs 4,478 crore what we paid last year, this year in the nine months we paid Rs 6,042 crore. So, the higher subsidy burden has impacted our net realisation. Q: Your oil and gas production actually fell 3 percent from the previous quarter. Can you explain why the production is declining?
A: The production growth that we have been enjoying over the last four years has received a slight setback in this year. This has been mainly due to external disturbances, bandhs, blockades which have affected the production and drilling operation to a reasonable extent.

As against 2.928 million tonnes we achieved in the last nine months of the 2011-12, this year we have done 2.828 million tonnes. So, there has been a reduction of around 3 percent in crude oil. As far as gas is concerned, as against 1.994 billion cubic meter, we have achieved 1.992 billion cubic meter. So, there has been a flat growth in gas production. However, we are likely to take action and improve the production from now onwards. Next year we have kept the guidance of 3.95 million tonne of crude oil production and 2.74 billion cubic meter gas production. Q: On the subsidy sharing aspect, there is hope that the Oil Marketing Companies (OMCs) will raise diesel prices sometime in the next week. It is not something that you are responsible for directly, but it does affect your fortunes at the end of the year. Have you been hearing anything from the OMCs that they will raise diesel prices again?
A: The last revision was done on January 18. We have to wait and watch whether they will be doing some revision around that time. Nevertheless, this year we do not expect any significant reduction in under-recoveries, but in the next year and years to come, if the price revision undergoes any upward revision, the subsidy burden should certainly come down.

Q: What do you expect the full year subsidy sharing ratio to be at for upstream companies like yours? Would it be 40 percent? Or do you think there could be some relief on that?
A: This year and last year, the subsidy burden has been pegged at USD 56 per barrel on production, so it is not linked to the percentage of under-recoveries. Going by the same standards, the same subsidy burden is applicable for fourth quarter. We should have a burden of around Rs 8,100 crore.