India's flagship explorer, Oil and Natural Gas Corp Ltd, should post a 14 per cent rise in quarterly net profit on Wednesday, though growth will be checked by heavy discounts offered to state refiners.
But high oil prices and a planned 12 per cent increase in output will help state-run ONGC, which is about the same size as Norway's Norsk Hydro ASA and Europe's Repsol, boost earnings in the coming quarters.
ONGC, which produces more than 80 per cent of India's oil, aims to spend Rs 140 billion ($3 billion) to raise output to 27.35 million tonnes for the year to March 2007, from 24.4 million tonnes a year earlier.
ONGC, with operations in more than a dozen countries, is looking for assets in Gabon, Vietnam and Colombia. It recently signed an agreement with state-run Petroecuador to jointly bid for an oil block in the Latin American nation.
India's most valuable company with a market value of $32 billion, ONGC is expected to post a net profit of Rs 37.66 billion in the fiscal first-quarter ended June 30, up from 33.18 billion a year ago, a Reuters poll of 10 analysts showed.
"High oil prices are the main driver for ONGC's profits though volumes are going to be low," said Jaspreet Singh, senior analyst with broker Prabhudas Lilladher.
ONGC reached near normal crude output of up to 520,000 barrels per day (bpd) in June from its Mumbai High field, where a key oil processing platform was destroyed by a fire last July.
Net sales are seen up 15 per cent at Rs 125 billion.
Full-year net profit is forecast to jump 29 per cent to Rs 185.94 billion, according to Reuters Estimates.
"ONGC stock should outperform the index in the coming months, climbing to Rs 1,200," Singh said. The shares added 3 per cent to Rs 1,080.35 on Monday, outpacing the top-30 BSE index's 1.3 per cent gain.
ONGC stock fell 15.4 per cent in April-June, underperforming the oil and gas sector sub-index's 7.6 per cent gain. The main index fell 5.95 per cent in the quarter.
India, which imports about two-thirds of its oil, has a complex cross-subsidy scheme to help cushion losses of state-run refiners caused by government-controlled fuel prices that are lower than world oil prices.
Because of this ONGC was forced to sell crude to state-run refiners and marketing companies at about $44 a barrel in the June quarter - a discount of about $26 a barrel, based on ONGC's benchmark Nigeria Bonny Light, analysts said.
This has helped soften the blow on state refiners such as Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp. Ltd, but the move could stifle ONGC's expansion.
India's Oil Secretary MS Srinivasan recently said ONGC may have to trim spending by about $1.5 billion to acquire oil and gas assets abroad due to its increased subsidy payout that could total $4.8 billion for the year to next March.
However, ONGC said its overseas arm ONGC Videsh Ltd can invest up to $12 billion over the next few years to buy overseas oil and gas assets to feed energy-hungry India's growth economy.
But it shied away from bidding in Russian oil firm Rosneft's $10.4 billion initial public offering earlier this month.