ONGC's profits soaring high

India's most valuable group of companies comprising Oil and Natural Gas Corp.(ONGC), ONGC Videsh Ltd (OVL) and MRPL reported on Sunday a 9 percent rise in profit for the year ended March 2006 despite slipping on crude oil production targets & price control with high global crude rates being a major stimuli in boosting the profits.

The group announced a gross profit of Rs 15,485 crore on a turnover of Rs 86,414 crore during 2005-06. A megaplan of investing close to Rs 75,000 crore in the refining business over the next 4-5 years was also announced by the ONGC group, which currently has a 13 million tonne per annum (mtpa) of refining capacity and plans to scale it up to 45.5 mtpa by 2009-10.

As a flagship state-run group, ONGC follows federal government orders to sell its crude at a discount to state-owned refiners, helping to insulate India's economy by capping retail fuel prices. India is stepping up oil and gas drilling to lower dependence on imported crude. Higher demand from China and India helped prices rise to a record last year. India imports two-thirds of its annual oil requirement. Its production is declining as existing fields age. The market cap of the group's flagship company, ONGC Ltd, crossed Rs 1,94,000 crore on March 30, 2006, the highest for any Indian company so far (save Wipro in the past), according to ONGC's chairman and managing director, Subir Raha.

According to Raha "High international crude oil prices, exemption from paying subsidy to GAIL and selling joint venture gas at market prices were some of the factors that led to the increase in profits." But he added: "Our profits were affected by us paying the highest ever subsidy (to refiners)." Raha said the company paid subsidies worth nearly per barrel in the last fiscal year. The firm charged per barrel to state-run refiners Indian Oil Corp. Ltd., Bharat Petroleum Corp. Ltd. and Hindustan Petroleum Corp. Ltd to help them reduce their losses. ONGC produced 24.4 million tonnes of crude oil during 2005-06. This is 92 per cent of the targeted 26.6-million tonnes. The company registered a net profit of Rs 12,983 crore in 2004-05. The turnover of the company was up 9 per cent to Rs 50,900 crore from Rs 46,712 crore in 2004-05. The company paid a subsidy of Rs 11,958 crore to oil marketing companies.

ONGC's foreign arm, OVL also posted a 22 per cent increase in its net profit at Rs 930 crore as against Rs 761 crore in the previous fiscal. OVL's turnover during 2005-06 was up 26 per cent at Rs 7,600 crore. Raha said with 10 acquisitions, OVL currently has 21 properties in 12 countries and has become India's biggest transnational company. OVL's crude production is up by 31 per cent at 4.867 mmt as compared to last year's 3.675 mmt. Gas production also went up by 30 per cent to 1.754 bcm as against 1.348 bcm last year.

All the new greenfield refining projects announced on Sunday will be executed by forming new companies, which will eventually get listed. The plans include a new 15 million tonnes per annum integrated refinery (export oriented) cum petrochemicals project at Mangalore SEZ at a cost of Rs 30,000 crore (Rs 15,000 crore for the refinery and Rs 15,000 crore for the petrochemicals complex). In addition, ONGC would execute two greenfield refineries of 7.5 mtpa capacity each at Barmer (Rajasthan) and Kakinada (Andhra Pradesh) at Rs 20,000 crore (Rs 9,000 crore for Kakinada and close to Rs 10,000 crore for Barmer). Sources said ONGC was in talks with Exxon-Mobil for a possible tie-up for its new export oriented refinery at Mangalore SEZ. It may offer Exxon a part stake in the refinery in lieu of crude supplies and jointly undertaking E&P projects. It is also talking to Exxon for jointly bidding for blocks offered under NELP-6.

On discoveries, Raha said ONGC had 10 oil and gas finds during 2005-06, of which two were onshore blocks, three offshore and five deep-water. Five significant finds were from the Krishna-Godavari basin blocks acquired from Cairn Energy in 2003-04. India is currently offering 55 areas for exploration & is expecting bids worth bn for oil and gas exploration sites from companies including Exxon Mobil, Chevron and ConocoPhillips.