How Oil&Gas cos fared in FY13 so far: ICRA

ICRA has come out with its report on oil and gas sector. According to the research firm, Under-recovery incidence on the upstream public sector companies amounted to Rs 302 billion for H1 FY13 which was 39% higher than the burden in the same period last year. In terms of % share, ONGC, Oil India (OIL) and GAIL India have borne 82%; 14% and 5% with the sharing ratio being on the lines of past year.

Oil and gas production has continued to be on a downward trajectory in the current fiscal with total output of 40.4 million tonnes of oil equivalent (MMTOE) being reported over April-Sep 2012, a 7% decline over the volumes in the same period last year. The dip has been mainly on account of lower gas production (13% yoy decline to 21.35 BCM) following further disappointments in Reliance Industries Limited’s (RIL) KG D-6 block and 1% lowering of crude oil production to 19.08 million tonnes owing to the lowering of volumes of Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) due to natural decline affecting their main properties apart from some production disruptions, even as Cairn India Limited (CIL) has ramped up scale and activities at its Rajasthan block. Upside in crude oil production limited over the near to medium term; import dependence to remain high: The firm global energy prices and continued high import reliance coupled with the adverse foreign exchange rate environment (steep depreciation of the Rupee vs US$) has resulted in the burgeoning of import bill for crude oil to Rs. 3654 billion for H1 FY 13, about 18% higher vis-à-vis last year. Given that incremental crude oil volumes are likely only from CIL as it scales up from current level of 175 kbpd (thousand barrels per day) to 240 kbpd by CY 13 while ONGC and OIL are at best expected to maintain their plateau production, India’s import dependence for crude is expected to remain high (~75-76-% of total), in view of the increased requirements of new/expanded refineries and normal growth in consumption of petroleum products. R-LNG imports to be fuelled by shortage of gas supplies in domestic market; high import cost however to be a deterrent for price sensitive sectors: Imports of regassified liquefied natural gas (R-LNG) have been steady at 4.4 million tonnes over the period April-August 2012, similar to the levels reported in the last fiscal, and have been supported by the shortages in domestic gas supplies and moderate global gas price environment. The gas deficit in the country is only expected to increase going forward in view of limited new sources of supply. While some of it is likely to be bridged by R-LNG imports, for certain price sensitive sectors like power, the high cost of imported gas is likely to be a major deterrent resulting in a large portion of their demand remaining unmet. Under-recovery burden to weigh heavy on financial profile of public sector upstream companies notwithstanding some recent positive measures: Under-recovery incidence on the upstream public sector companies amounted to Rs. 302 billion for H1 FY 13 which was 39% higher than the burden in the same period last year. In terms of % share, ONGC, OIL and GAIL have borne 82%; 14% and 5% with the sharing ratio being on the lines of past year. The overall under-recoveries of the public sector oil marketing companies have been Rs. 856 billion for H1 FY 13 which have been distributed amongst upstream companies; GoI and downstream companies in the ratio of 35%; 35% and 30% respectively till date. Notwithstanding some positive policy measures such as the upward revision in diesel prices and cap on number of subsidized cylinders effected in Sep 2012, under-recoveries of OMCs are expected to touch Rs. 1670 billion for the full year FY 13 implying a 20.5% jump over last year and would entail additional financial liability for upstream companies. On the policy front, the Rangarajan Committee report remains keenly awaited and is expected to be finalized and submitted by early December 2012 end (as against original deadline of August 2012 end). The panel’s recommendations are expected to provide guidance on various contentious issues including structure and provisions of the production sharing contracts; determination of the profit sharing mechanism; method of gas pricing etc and are expected to set the ground rules for the future development of the Indian E&P sector. Key highlights of main E&P players performance in H1 FY13 Oil and Natural Gas Corporation: Domestic production marginally down due to natural field related issues and net realizations subdued by high
under-recoveries. Overseas subsidiary OVL sees slippage due to geopolitical problems affecting assets in Sudan & Syria; announces two big ticket
acquisitions. Oil India Limited: Domestic production hampered marginally due to offtake and technical issues; realisations constrained by under-recovery
incidence. Cairn India Limited: Robust revenue and profitability growth driven by up scaling of production at Barmer block in Rajasthan and continued
buoyancy in global energy prices; further upsides identified in the Rajasthan block and overseas foray made with a new block in South Africa. Reliance Industries Limited: Dipping domestic gas production (mainly KG D-6)constrains revenues and profitability of E&P business; shale gas assets scaling up well Hindustan Oil Exploration Company Limited: Performance remains muted due to offtake issues affecting PY-1 field and production in PY-3 field
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