Oil & Natural Gas Corporation Limited (ONGC), Reliance Industries Limited (RELIANCE): A Brighter Future for India’s Upstream Energy Sector

Page 1 of 2

India’s leading oil and gas explorer Oil & Natural Gas Corporation Limited (NSE:ONGC), or ONGC, has recently reported a steep decline in quarterly earnings as it sold its output at significant discounts. The company has been suffering from aging fields as the exploration-related write downs rose by one-third from the same quarter last year to $850 million while depreciation charges doubled to $423 million in the same period. Moreover, Brent crude prices also did not help, and averaged $112.64 during the quarter, showing a decline of 5% from last year.

Reliance Industries Limited (NSE:RELIANCE)On the other hand, Reliance Industries Limited (NSE:RELIANCE), the owner of the world’s largest refinery located in western India, has posted a 32% increase in quarterly income to $990 million. However, unlike ONGC, Reliance Industries Limited (NSE:RELIANCE) is largely a refiner, which is a higher margin operation. In fact, like ONGC, Reliance Industries Limited (NSE:RELIANCE) has struggled with its oil and gas production business as the unit’s quarterly revenue dropped 39%. Its income from converting crude to refined products, however, rose 33% to $10.10/barrel. As a result, the business ended up with increasing profits despite recording a 1.2% overall drop in sales.

Oil & Natural Gas Corporation Limited (NSE:ONGC) and Reliance Industries Limited (NSE:RELIANCE) have significant representation in PowerShares India ((NYSEARCA:PIN) and the WisdomTree India Earnings Fund (NYSEARCA:EPI), both exchange-traded funds (ETFs). The two firms are among the top-three holdings in both of these ETFs. The PowerShares India portfolio ETF is energy focused and devotes 25.6% of the funds to this sector while WisdomTree India Earnings Fund ETF is financials-focused with total sector weight of 25.4%. But the energy sector isn’t far behind with a weight of 19.8% of the funds.

Oil & Natural Gas Corporation Limited (NSE:ONGC)’s strategy is to increase its domestic and international reserves and output. For this reason, it has increased its capital expenditure budget by 18.8% from last year’s $5.2 billion to the current $6.2 billion. The company also has a very ambitious target to spend $195 billion by 2030 on building reserves and increasing production. From this perspective, the drop in profits will put pressure on its cash reserves.

In the last fiscal year, ONGC’s total output was approximately 51.4 million tons of oil equivalents, which it expects to increase by 1.9% to 52.5 million tons. I believe that the target is modest but it is realistic. ONGC has recently announced two new discoveries of which the KG basin field will start production within three years.

India’s oil and gas sector has witnessed government reforms that have largely been received well. India, much like China, was keeping a lid on oil prices to tackle the rising inflation and as a result, Oil & Natural Gas Corporation Limited (NSE:ONGC) was forced to sell crude at steep discounts to refiners.

However, the government has increased diesel prices while refiners are given more freedom to set their own price. I believe that this will reflect positively in the coming quarters as the current levels of subsidy that ONGC gives to refiners, which was approximately $2.2 billion in the previous quarters, will fall.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!