Tuesday, June 2, 2009

Sector Analysis: Oil and Gas

Key Highlights
  • BSE Oil & Gas delivered the positive return of 16.58% vis-à-vis BSE 500 which delivered negative return of 2.04% during Q4FY09.
  • Market capital of BSE Oil & Gas augmented by Rs 71,188.38 crore during Q4 FY09.
  • Crude oil prices rose significantly during Q4FY09, both domestic and international oil prices gained almost 30%.
  • India, under NELP VIII, launched its biggest ever auction of oil and gas exploration blocks, offering 70 areas for bidding comprising 24 deep-sea blocks, 28 shallow water blocks and 18 onland blocks. Bids will close on Aug.10.
  • In March 2009, the government issued bonds worth Rs 10,000 crore carrying 8% coupon rate to state-run oil marketing companies to compensate them for selling petroleum products at below cost price.
Movement of BSE Oil & Gas vis-à-vis BSE 500


The surge in crude oil prices made oil & gas sector better performer during this quarter. India's domestic demand for oil and gas also rose during the period. Subsidies on transportation and cooking fuels have helped India sustain its petroleum products consumption growth of about 8-9% per annum. Among 11 companies in BSE Oil & Gas index, so far only 5 have declared their results which show a mixed tend in sales and profit. In the upstream segment, Aban and Essar managed to post a positive quarterly return (yoy) while Reliance companies witnessed fall in the PAT of around 10% each (yoy). Coming results of the other companies are also expected to be subdued. Meanwhile, India is making efforts to lower its oil import as Cairn India’s Rajasthan field production is going to offset up to 7% of country’s oil import and will increase India's total production by 20%. ONGC is also making new discoveries for oil wells around the country.

In the down stream segment, Oil marketing companies enjoyed a surplus of INR 3/ liter for petrol, INR 7/ liter for diesel, and borne under recovery of INR 10/ltr in kerosene and INR 44/cylinder this quarter. Slump in the middle and light distillate market led them to earn surplus in absolute terms in marketing segment since Indian consumption pattern is more inclined towards middle distillates. This year domestic gas availability was around 90mmsmcd, tough demand outstripped supply. With the arrival of KG basin gas from April 2009 which will narrow down the demand-supply gap.

Oil & Gas in Q4 FY 09

Financial Performance 


Total Income

Operating Profit

Net Profit

Growth (%)QoQYoYQoQYoYQoQYoY
Aban Offshore Ltd.1.4035.074.7269.20-16.1435.60
Essar Oil Ltd.-16.2714,218.37252.0314,162.50153.668,350.00

Annual Performance

CompanyNet SalesChange-YoYOperating  ProfitChange-YoYNet ProfitChange-YoY
 Rs. Cr(%)Rs. Cr(%)Rs. Cr(%)
Aban Offshore Ltd.1,055.8860.50713.3573.30255.5960.60
Essar Oil Ltd.38,1905,748.401,2023,534.30-514-1,153.7
Out of 11 companies under BSE Oil & Gas, only 5 companies have declared result of Q4 FY09 till May 21, 2009 
Source: CapitaLine

Reliance Industries Ltd. (RIL)

For the fourth quarter, Reliance Industries Ltd. (RIL) reported a decline in its top line, down 23.9% (yoy) due to the depressed petrochemical and refining products’ prices. However, the decline was partially compensated by improved operating margins, which jumped almost 310 bps yoy to 19.2%, primarily on the back of lower feedstock costs. The Company’s gross refinery margin (GRM) dipped from USD 15.5/bbl in Q4’08 to USD 9.9/bbl in Q4’09; however, it remained flat on sequential basis. In the near term, we expect the GRM to remain under pressure and hover in the range of USD 8—11/bbl. Meanwhile, RIL commissioned gas production from the KG D6 field in April 2009. The 550,000 barrels of oil equivalent per day (BOEPD) project should significantly boost both the Company’s top and the bottom lines.

In Q4’09, revenues from the petrochemical segment plummeted 31% yoy to Rs. 97.2 billion, largely because of the fall in demand of petrochemical products caused by the global economic slowdown. However, the segment witnessed a sharp improvement in the operating margins, which improved as much as 730 bps yoy to 17.5%. The improvement, which was primarily driven by lower feedstock costs, helped the Company to register a positive EBIT growth for the fourth quarter. In Q4’09, EBIT increased 17.5% yoy to Rs. 17.2 billion.

Essar Oil Ltd.
Essar Oil posted a net profit of Rs 660 crore for the fourth quarter ended March 31, 2009, against a net loss of Rs 8 crore during the same quarter in 2008. Essar Oil total income has increased tremendously for the year to Rs. 38,190 crore up by 5,748.4% from last year however its net profit came in negative figure of Rs. 514 crore as compared to the net loss of Rs 41 crore last year. The company’s profit surged after its refinery at Vadinar in Jamnagar began operating at full capacity from May 2008. Also, oil prices were high, which helped in boosting the profit. Total income, during the quarter, has increased by Rs 6,984 crore from Rs 49 crore to Rs. 7,033 crore from the corresponding period last year. The gross refining margin for the quarter stood at USD 10.92 per barrel. The crude processed during the quarter was 3.31 million tonnes. The company has decided to seek its shareholders’ approval for issue of further equity shares and/or convertible debentures by way of private placement in domestic or international market up to USD 2 billion.

Reliance Natural Resources Ltd. (RNRL)
Reliance Natural Resources Ltd has reported a 4.32% increase in consolidated net profit at Rs 71.54 crore for the year ended 31 March, 2009 against last years Rs 68.58 crore. The consolidated income increased to Rs 418.96 crore for the year ended 31 March, 2009, up by 14.06% from Rs 367.31 crore in the year-ago period.  The company had decided to procure six ships by the next quarter to transport coal from international destinations to India for its proposed 4,000-mw ultra mega power project (UMPP) in Krishnapatnam for which it will make an investment of around Rs. 2,000 crore.

Reliance Petroleum Ltd. (RPL)
Reliance Petroleum Ltd. which has started commercial production from March 15 has reported a net profit of Rs 84 crore and a net turnover of Rs 3,678 crore for the quarter ended March 31, 2009.  The total income during the quarter amounted to Rs 3,702 crore.

Oil & Gas on Bourses

BSE Oil & Gas index performed better during fourth quarter of FY09 on the back of better performance of upstream companies and RIL. The prices of upstream companies gained due to the recovery of oil prices while RIL delivered better return as the news of commissioning gas production from the KG D6 field and synergy from RIL-RPL merger which boosted the confidence among the investors.

Return posted by BSE sectoral indices vis-à-vis BSE 500 in Q4 FY09 (Q-o-Q)

ParticularsIndex ValueReturn
B S E Auto Index3,061.6725.24
B S E Oil & Gas Index7,053.0416.58
B S E Metal Index5,795.0711.14
B S E Information Technology Index2,285.682.59
D S E FMCG Index2,036.242.46
B S E Power Index1,847.100.97
B S E PSU Index5,230.17-0.94
B S E 500 Index3,523.53-2.04
B S E Teck Index2,830.11-4.59
B S E Healthcare Index1,846.83-5.15
B S E Capital Goods Index6,466.03-6.44
B S E Consumer Durables Index1,625.45-15.06
B S E Bankex4,490.97-17.67
B S E Realty Index1,560.83-31.37

BSE Oil & Gas indices was among better performers in BSE sectoral indices which delivered positive return of 16.58% out performed vis-à-vis BSE 500. In BSE Oil & Gas, scrips RIL topped with 23.81% return followed by GAIL with 18.57% and ONGC with 16.78% return while major losers were Aban Offshore Ltd. (-40.50%), RNRL (-21.59%), Essar Oil Ltd. (-16.37%).

Performance of BSE Oil & Gas stocks for Q4 FY09

Company Name
31-Dec31-Mar% Return









Cairn India Ltd.








Essar Oil Ltd.




Aban Offshore Ltd.


Government Initiatives

The government issued bonds worth Rs. 10,000 crore to state-run oil marketing companies to compensate them for selling petroleum products at below cost price. The bonds - India Special Bonds, 2026 - will carry an 8% coupon rate. Indian Oil Corporation got the highest compensation of Rs 5,817.27 crore worth of special bonds, Bharat Petroleum Corporation received Rs 2,144.32-crore bonds and Hindustan Petroleum Corporation got bonds worth Rs 2,038.41 crore.

Global Scenario

Unfriendly global economic data like contracting industrial production of US and Euro zone and downgrading GDP growth rate of major oil consuming countries such as US, China and India continued to dampen the crude oil prices which hit the earnings of the major oil companies around the world. World’s second-largest non-government controlled oil company, Royal Dutch Shell Plc., reported fall in net profit by 28% this quarter. US oil giant Exxon Mobil had also reported 58% fall in this quarter earnings. Lower oil prices also affected the earnings of British oil major BP as its net profit plunged 62% for the first quarter while Chevron Corp reported a 64% decline in quarterly profit. However, crude prices are showing the sign of reversal from last quarter’s extreme low it is gradually increasing after OPEC decision to cut record 2.2 million bpd.


We expect a revival in the crude oil price and average within the range of USD 65-70 per barrel in the long term. Upstream companies like ONGC and Cairn India are expected to witness rise in gross realization. Further, production from the new blocks by upstream companies, like Cairn India-which is about to start production from its Rajasthan block which will deliver 30,000 bpd by the second quarter 2009-10, will help to improve the earnings of upstream companies as well as to reduce country’s dependency on import for its domestic consumption.

As far as OMC’s are concerned, rising crude oil prices will lead OMC’s back to square one on the sale of their subsidized products which include diesel, petrol, kerosene and LPG, earning negative marketing margins. Further, refining margins will be also under pressure.

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