CGSB Profits Will Be Boosted By Rising Crude Oil Prices

The rise in crude prices remained favorable to ONGC’s performance during the quarter ended March 2021. The company saw a sharp increase in net achievements, which for the stand-alone entity at $ 58.10 per barrel, increased to $ 58.10 per barrel. peaked in five quarters. Crude oil sales, however, were impacted by covid-19.

Net crude oil sales at 5.2 million tonnes (mt) were down 4% year-on-year, and were in line with analysts’ estimates.

The benefits of higher crude achievements were partially offset by low gas prices, which at $ 1.79 per million British thermal metric units (mmBtu) were significantly lower than $ 3.23 per mmBtu during T4FY20 . Gas sales suffered from the covid impact (- 8.1% year on year). The company said the shortfall in natural gas production is mainly due to a decrease in customer withdrawals due to the covid-19 pandemic. This has also resulted in a production deficit of condensate and value added products (VAP).

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Recovery expected

Its own-source revenues are down 1.2% year-on-year. Lower operating costs, however, improved operating performance. AT 10,120 crore, EBITDA (earnings before interest, taxes, depreciation and amortization) jumped 18% year-on-year and margins at 47.8% were significantly higher than 40% in last year’s quarter and 42, 7% in the previous quarter. The same also increased the bottom line profits which at 6,733 crore quintupled from the previous quarter. He had suffered losses in the quarter of last year. This included the benefits of extraordinary gains. Adjusted for the same, however, profits were still five times higher a year ago, according to analysts at Motilal Oswal Financial Services Ltd.

By moving forward with crude prices at multi-year highs during the current quarter, the company could see further improvement in crude price achievements. The company does not expect any subsidy burden despite rising crude prices, which is a key positive. On the bright side, the company said it had almost hit production levels last year in the event of crude oil coming from its operated blocks despite a nationwide lockdown due to covid. This could further increase crude oil contributions.

Domestic gas prices will nevertheless be reviewed from the second half of the year. Demand for gas could remain strong as disruptions caused by Covid normalize. However, all eyes will be on increased gas production. The company intended to ramp up gas production in FY21, but this was delayed due to covid-related disruptions. The resumption of gas production in fiscal years 22 and 23 will be monitored and is important to boost the performance of the gas segment at a time when gas prices are at historically low levels. Analysts were cautious about rising production and said that in the near term, high crude prices will support profits.

Yogesh Patil, research analyst at Reliance Securities, said CGSB remains a pure play on crude prices. Although oil and gas production is normalizing, analysts are waiting for triggers on oil and gas production growth to boost profits.

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