ONGC flirts with losses as crude price nears its production cost

23 Dec 2015 | Author: | No comments yet »

Iraq Sees Crude Oil Prices Rising on Strong Market Fundamentals.

Mumbai: For the first time since crude oil prices began to fall in July 2014, the Oil and Natural Gas Corp. Crude prices are set to rise from current “very low” levels that are hurting producers, Iraq’s Oil Minister Adel Abdul Mahdi said after a meeting of Arab petroleum-exporting nations.

Abdul Mahdi, whose country is the second-biggest producer in OPEC, didn’t forecast when prices would rebound from an almost seven-year low for Brent, the benchmark for more than half of the world’s oil. Qatar’s Energy Minister Mohammed Al Sada told reporters before the meeting in Cairo there was no need to be pessimistic about prices. “There is no doubt that oil prices will rebound,” Abdul Mahdi told reporters after the meeting of the Organization of Arab Petroleum Exporting Countries. “This current level is too low, and it’s affecting oil producers. This can have far-reaching implications for the company, from jeopardizing its planned Rs.50,000 crore investment in the much-touted KG basin fields to the enhanced oil recovery programmes worth Rs.20,000 crore for its ageing fields in the Arabian Sea.

I think economic factors and fundamentals are still strong.” A global oversupply of crude has triggered the worst slump in the energy business since the 2008 world financial crisis. The other major Indian explorer, Cairn India Ltd, is still cushioned as its cost of production is just around $10 per barrel due to operating onshore fields, which are cheaper to operate and also relatively newer. And with every dollar fall, ONGC moves a step closer,” said Piyush Jain, equity research analyst, energy, industrials and basic materials, at Morningstar Investment Advisor Pvt.

OAPEC was established in 1968 to foster the development of the petroleum industry in member states as part of an economic integration plan among Arab countries. Investors are worried that with the continuous fall in the price of crude, ONGC will have to eventually resort to debt to compensate for fall in cash flows to invest in its capital expenditure. The Indian basket of crude oil, which is a derived basket comprising 72% grades of Oman and Dubai average and 28% grade of Brent crude, stood at $34.39 per barrel on 14 December, according to the Petroleum Planning and Analysis Cell, a data tracker of the oil ministry. “At this price, ONGC is just at break-even,” said an analyst with an international brokerage who declined to be named.

Domestic brokerage Axis Capital said in a 23 November report that share prices of upstream oil companies will get a much-needed boost if the government reduces the cess burden on them. “Earnings of upstream will remain muted due to (a) lower crude and domestic gas prices and (b) muted volume growth.

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