State-owned Oil and Natural Gas Corp (ONGC) today reported a 32 per cent drop in profit, the biggest in almost four years, after jump in its fuel subsidy outgo, a trend the company warned will erode its cash reserves by almost two-third.
Net profit dropped 31.8 per cent to Rs 5,897 crore, or Rs 6.89 rupees a share, in July-September as compared to Rs 8,642 crore a year earlier, ONGC Chairman and Managing Director Sudhir Vasudeva told reporters here.
"The single reason for this was jump in our subsidy outgo - from Rs 5,713 crore in Q2 of last fiscal to Rs 12,330 crore this year," he said.
Upstream firms like ONGC bear a part of the revenues that fuel retailers lose on selling diesel and cooking fuel at government controlled prices. The subsidy is paid by way of discounts on crude oil they sell to refiners.
ONGC's gross realisation in July-September was USD 109.85 for every barrel of crude oil but it had to give a discount of USD 63.05 a barrel, leading to a net realisation of USD 46.8 per barrel.
The net realisation is lower than USD 56 per barrel that the oil ministry had promised the company to help it sustain its operations.
"This is certainly worrying. Our cost of production is going up and any realisation less than USD 60 per barrel is not sustainable for us," he said. "If the trend (of USD 46 per barrel net realisation continues) we will have to dip into our cash reserves to meet the Rs 33,577 crore planned capital expenditure for the current fiscal."
ONGC may have to draw about Rs 8,000-8,500 crore this fiscal from its cash reserves of Rs 12,500 crore, he said. "It is a myth that we are sitting on a huge cash pile. Our subsidiaries ONGC Videsh and Mangalore Refinery do not generate that kind of cash to meet capital requirement which is met from ONGC's cash accruals."
"We need in excess of USD 60 per barrel to sustain our capital expenditure," he said adding rise in subsidy payout in Q2 dented ONGC's profit by Rs 7,103 crore.
The company's sales fell by 12.5 per cent to Rs 19,853 crore. Crude oil production fell 4.6 per cent to 6.527 million tons while gas ouput was down by a marginal 0.5 per cent to 6.359 billion cubic metres.
Vasudeva said ONGC's crude oil production is likely to rise to 29.1 million tonnes next