On the back of a continuous fall in crude oil prices to over 5-year lows, state-owned Oil and Natural Gas Corp's (ONGC’s) net profit declined by almost 50% to Rs 3,571 crore in the third quarter ending December 2014 as compared to Rs 7126 crore in the corresponding quarter of the previous fiscal. This is ONGC’s second successive quarterly profit drop following decline in crude oil prices which impacted the state explorer's sales.
ONGC said its profit was impacted by Rs 5,386 crore as a result of the discounts offered to downstream firms to part offset their under-recoveries.
Crude oil prices have dived to less than $60 a barrel in December from a peak above $115 on June 19 last year as increasing US shale oil output helped create a glut amid sluggish global demand growth.
Total income of the company also dipped 9.2% to Rs 18,924 crore during the quarter as against Rs 20,852 crore in the corresponding period last fiscal. For the December quarter, sharing of subsidy burden impacted ONGC’s revenues by Rs 9458 crores.
As the government subsidises retail prices of liquefied petroleum gas (LPG or cooking gas) and kerosene to keep prices under check, it is upstream companies like ONGC and Oil India Ltd that share the cost of these subsidies and sell crude oil at a discount to sister oil PSUs like Indian Oil, BPCL and HPCL.
"The company has shared the under-recoveries of OMCs for the nine months and quarter ended December by allowing discount on the price of crude oil, Kerosene and domestic LPG," ONGC said in a statement to the Bombay Stock Exchange (BSE).