ONGC’s Q1 profit plummets despite revenue surge—what’s behind the drop?

Oil and Natural Gas Corporation Limited (ONGC), India’s largest oil and gas exploration company, has announced its financial results for the first quarter (Q1) of fiscal year 2024-25. The board meeting, held on 5 August 2024, revealed a mixed performance with a notable decrease in net profit despite an increase in gross revenue.

Key Financial Highlights

ONGC’s gross revenue for Q1 FY 2024-25 reached ₹35,266 crore, marking a 4.3% increase from ₹33,814 crore in the same quarter of the previous fiscal year. However, the company’s net profit for the quarter stood at ₹8,938 crore, a decline of 15.1% compared to ₹10,527 crore in Q1 FY 2023-24. The reduction in profit is attributed to higher operational costs and fluctuating crude oil prices.

The average realization price of crude oil for ONGC was reported at ₹6,928 per barrel, up 10.4% from ₹6,277 per barrel in the previous year. Despite the increase in crude oil prices, the overall profitability was impacted due to elevated costs and lower net realizations from joint ventures.

Consolidated Financial Performance

In consolidated terms, ONGC reported a gross revenue of ₹1,66,577 crore, a 1.7% rise from ₹1,63,824 crore in Q1 FY 2023-24. However, the consolidated net profit experienced a significant decline of 42.8%, dropping to ₹10,236 crore from ₹17,893 crore year-over-year. Net profit attributable to the owners was ₹9,936 crore, down 32.1% from ₹14,644 crore in the previous year.

Production Performance

ONGC’s production figures for the quarter reflected a mixed performance. Crude oil production from ONGC operations was 4.629 million metric tonnes (MMT), showing a modest increase of 0.8% from 4.590 MMT in Q1 FY 2023-24. In contrast, crude oil production from joint ventures (JVs) decreased by 20.9% to 0.353 MMT. Total gas production also saw a decline, with ONGC producing 4.860 billion cubic metres (BCM) of gas, down 3.6% from the previous year. Gas production from joint ventures also fell by 16.9%, leading to an overall reduction in total gas output.

Exploratory Success and Discoveries

ONGC reported five new discoveries in FY 2024-25 so far. Among these, three discoveries were announced since the last update on 20 May 2024. The discoveries include the PURN-1 well in the Olpad Formation, which confirmed hydrocarbon presence and opened up new exploration areas; the West Matar-2 well, which established commercial oil and gas in previously unproven sands; and the Chandramani (B-56-B) well in the Mumbai Offshore, which identified new hydrocarbon deposits in the Diu Formation.

Additionally, ONGC has submitted a Field Development Programme to the Directorate General of Hydrocarbons (DGH) for the monetisation of the Hatta Discovery in the Vindhyan Basin, Madhya Pradesh.

Recent Developments and Strategic Initiatives

Sustainability and Green Initiatives: ONGC has been focusing on enhancing its sustainability efforts and reducing its carbon footprint. The company has initiated several green energy projects, including the development of wind and solar power facilities. These initiatives are part of ONGC’s broader strategy to diversify its energy portfolio and align with global energy transition trends.

Investment in Technology: The company has been investing significantly in advanced technologies to improve exploration and production efficiency. ONGC is leveraging digital technologies, such as artificial intelligence (AI) and machine learning (ML), to optimize its operations and enhance decision-making processes. These technological advancements are expected to play a crucial role in overcoming operational challenges and boosting productivity.

Collaboration and Partnerships: ONGC is actively seeking collaborations with international and domestic partners to expand its exploration activities and access new technologies. The company recently signed a memorandum of understanding (MoU) with TotalEnergies for joint exploration and production activities. Such partnerships are expected to strengthen ONGC’s capabilities and support its growth objectives.

Expert Opinion

Industry experts note that ONGC’s latest financial results reflect the challenges facing the oil and gas sector, including volatile crude oil prices and high operational costs. Despite these challenges, the company’s continued success in exploratory activities and the submission of a development programme for new discoveries signal ongoing strategic progress. The emphasis on local exploration and the opening of new plays highlight ONGC’s commitment to expanding its resource base and enhancing its production capabilities.

Analysts also emphasize the importance of ONGC’s green initiatives and technological investments in ensuring the company’s long-term sustainability and competitiveness. The integration of digital technologies and renewable energy projects will likely position ONGC as a forward-thinking player in the global energy market.

Summary

ONGC’s Q1 FY 2024-25 results show a complex picture: while gross revenue increased, net profit fell sharply due to higher costs and price volatility. The company’s exploration success and ongoing efforts to develop new fields indicate a strategic focus on long-term growth despite short-term financial challenges. As ONGC continues to invest in technology, sustainability, and strategic partnerships, it remains well-positioned to navigate the evolving energy landscape and capitalize on emerging opportunities.

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Why did ONGC’s net profit drop in Q1 FY 2024-25 despite an increase in revenue?

ONGC’s net profit dropped in Q1 FY 2024-25 due to higher operational costs and fluctuating crude oil prices. Despite a 4.3% increase in gross revenue, the company faced increased expenses and lower net realizations from joint ventures, leading to a 15.1% decline in net profit.

What were ONGC’s key financial highlights for Q1 FY 2024-25?

ONGC reported a gross revenue of ₹35,266 crore, a 4.3% increase from the previous year. However, net profit fell to ₹8,938 crore, a 15.1% decline. The average realization price of crude oil was ₹6,928 per barrel, up 10.4% from the previous year. Consolidated revenue was ₹1,66,577 crore, with a net profit of ₹10,236 crore, a 42.8% drop year-over-year.

How did ONGC’s production figures change in Q1 FY 2024-25?

ONGC’s crude oil production from its operations increased slightly by 0.8% to 4.629 million metric tonnes (MMT). However, crude oil production from joint ventures decreased by 20.9% to 0.353 MMT. Total gas production also declined, with ONGC producing 4.860 billion cubic metres (BCM) of gas, down 3.6% from the previous year.

What new discoveries did ONGC report in FY 2024-25?

ONGC reported five new discoveries in FY 2024-25, including the PURN-1 well in the Olpad Formation, the West Matar-2 well, and the Chandramani (B-56-B) well in the Mumbai Offshore. These discoveries confirmed the presence of hydrocarbons and opened up new exploration areas.

What strategic initiatives is ONGC undertaking to address financial and operational challenges?

ONGC is focusing on enhancing its sustainability efforts and reducing its carbon footprint through green energy projects like wind and solar power. The company is investing in advanced technologies, including AI and ML, to optimize operations. ONGC is also seeking collaborations with international and domestic partners to expand exploration activities and access new technologies.

How does ONGC’s financial performance in Q1 FY 2024-25 compare to the previous year?

Compared to the previous year, ONGC’s gross revenue increased by 4.3%, but net profit dropped by 15.1%. Consolidated net profit declined significantly by 42.8%. The increase in crude oil realization prices was offset by higher operational costs and lower net realizations from joint ventures.

What are the long-term prospects for ONGC given its current strategic direction?

Despite short-term financial challenges, ONGC’s long-term prospects are positive due to its focus on sustainability, technological investments, and strategic partnerships. The company’s ongoing exploratory success and efforts to develop new fields indicate a commitment to long-term growth and enhancing production capabilities.

What has been the international and domestic response to ONGC’s latest financial results?

Industry experts have noted the challenges faced by ONGC, including volatile crude oil prices and high operational costs. However, there is optimism regarding ONGC’s green initiatives and technological investments, which are expected to ensure long-term sustainability and competitiveness. Analysts emphasize the importance of these strategic moves in navigating the evolving energy landscape.

How is ONGC addressing the decline in gas production?

ONGC is investing in advanced technologies and exploring new fields to enhance gas production. The company is also focusing on optimizing its existing operations and collaborating with partners to access new technologies and improve efficiency.

What role do ONGC’s green initiatives play in its overall strategy?

ONGC’s green initiatives are crucial for diversifying its energy portfolio and aligning with global energy transition trends. The development of wind and solar power facilities is part of the company’s broader strategy to reduce its carbon footprint and enhance sustainability, ensuring long-term growth and competitiveness in the global energy market.