Output hike may soothe oil explorers post windfall hit

NEW DELHI: The impact of the windfall profit tax on upstream oil marketing companies was clearly visible in the September quarter results of state-owned Oil and Natural Gas Corp. Ltd and Oil India Ltd.

While the companies earned higher gross realizations since the windfall tax was imposed by the Centre on 1 July on crude oil exports, net realizations came in much lower.

ONGC’s standalone crude oil realizations from nominated oil fields at $95.49 a barrel were up 37% from the year ago, while crude oil realizations at $94.96 from joint ventures were up 33%. However, the company did not benefit as much, compared to the rise in oil prices.

Analysts at Motilal Oswal Financial Services said that while ONGC’s gross oil realization stood at $95.2 a barrel, after the windfall tax, realization stood at $72 a barrel. For Oil

India too, net realization after the impact of the windfall tax came in at $76.8 a barrel, down 32% sequentially.

Note that both ONGC and OIL benefited from net realizations of more than $100 a barrel in the June quarter, as Brent surged to more than $120 a barrel.

While crude price has cooled to sub-$100 a barrel, analysts said it may not go down further, considering the geopolitical situation. Upstream oil companies may, however, get lower net realization of close to $75 a barrel, adjusted for windfall taxes.

Therefore, the focus now shifts to production growth for the two companies, analysts added.

ONGC’s production is expected to rise, led by contributions from the KG Basin. Total crude oil production in the first half of FY23 was 10.854 million metric tonnes, on par with the year-ago levels. Its gas production was marginally lower by 0.4% to 10.735 billion cubic meters (bcm).

However, with KG98-2 coming on stream, oil and gas production will rise, said Prabhudas Lilladher analysts. The FY25 production target for oil and gas is at 25.7mtpa and 27.5 bcm, respectively. For FY23, the oil and gas target is 22.8 mtpa and 22.1 bcm, respectively.

The floating production storage and offloading (FPSO) system for the KG Basin will go live in January-February 2023, and the first oil is likely to be available in May 2023. The production guidance for FY24 from KG Basin is 1.9mmt for oil, and 2.8bcm for gas, at peak capacity, and 45kbopd and 12mmscmd, respectively, for FY25, said analysts at Motilal Oswal.

Factoring in Oil India‘s guidance for production growth, the analysts said the company’s oil and gas production will be at 6.2-6.4 mmtoe (mmt of oil equivalent) in FY23 and FY24, respectively.

The analysts raised FY23 Ebitda estimates by 10% keeping FY24 Ebitda unchanged. Ebitda stands for earnings before interest, taxes, depreciation and amortization.

ONGC’s and OIL’s gas realisations will also benefit from the upward revision in domestic prices for the second half of the fiscal year.

In line with the rise in international natural gas prices domestic natural gas price was raised by 41% to $8.57 a mmbtu (million British thermal units) for H1FY23. Gas prices in H1 was at $ 6.1 per mmbtu.

REUTERS Total crude oil production in the first half of FY23 was as much as 10.854 million metric tonnes.