ONGC shares surge 8%; gas price hike to add Rs 1,950 cr to profits this year

State-owned Oil and Natural Gas Corp (ONGC) will rake in about Rs 1,950 crore in additional profit this fiscal from the 46 percent rise in natural gas prices announced by the government.

After postponing three times, the government on Saturday approved a revised formula of pricing almost all domestically produced natural gas from November 1. The current price of $4.2 per million British thermal unit will rise to $6.17 per mmBtu on a like-to-like basis.

Finance Minister Arun Jaitley on Saturday said the price from 1 November will be $5.61 per mmBtu on heat value the fuel will generate on gross calorific value (GCV) basis.

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The current $4.2 per mmBtu rate of gas is on net calorific value (NCV) basis. In GCV terms, the current price comes to $3.8 per mmBtu.

Using GCV methodology announced by Jaitley, the price has gone up from $3.8 to $5.61 per mmBtu, over 46 percent rise. If compared on NCV terms, the price will rise from $4.2 to $6.17 per mmBtu, a 46 percent rise.

“The gas price increase is not 33 per cent - from $4.2 to $5.61 as it is not like-to-like comparison. Suppose you sell apples at a particular rate per pound and decide to price the same apple at a higher price per kg, then the increase has to be calculated on like-to-like terms,” a senior industry official said.

Shares of the state-run oil and gas explorer surged about 8 percent to 422 today on the BSE. At 10:12 am, the stock is trading more than 5 percent up at Rs 418. The rise in stock is being attributed to the pricing reform of the government.

ONGC Chairman and Managing Director Dinesh K Sarraf told PTI on Sunday that the decision is a positive for the company as it will help monetise some of its small and marginal gas discoveries.

“Every $1 rise in gas price increases our revenues by Rs 4,000 crore and net profit by Rs 2,350 crore,” he said.

An almost $2 increase in gas price will result in ONGC net profit going up by about Rs 4,700 crore on an annualised basis. For the five months of current fiscal, ONGC will stand to benefit about Rs 1,950 crore, he said.

The price may, however, be not enough for some of its deepsea gas finds particularly in the Krishna Godavari basin but the clause in yesterday’s Cabinet approval that gas rates will be revised every six months with the next revision being on April 1, spells hope for the company.

By the time the discoveries come on production in 2018, rates would have risen further.

The new price, based on the recommendations of a Committee of Secretaries (CoS) that reviewed the UPA government’s gas pricing guidelines of January 2013, would lead to a rise in cost of generation of gas-based power and making of fertiliser. It will also result in CNG and piped cooking gas (LPG) going up.

Also, the government will get additional revenue of Rs 3,800 crore annually.

The new price will be determined on Gross Calorific Value (GCV) basis and reviewed every six months against thequarterly price changes approved by the previous UPA government based on Rangarajan committee recommendation.

The first price would be determined on the basis of global prices prevailing between July 2013 and June 30, 2014. This would come into effect from November 2014, and would be valid until March 2015.

The price would then be revised for the next six months ending September 2015 on the basis of prices prevalent between January 2014 and December, 2014. The prices would be announced 15 days in advance of the half year.

The Rangarajan formula would have resulted in gas prices rising to $8.4.

Sarraf said told PTI that the decison of the Cabinet will incentivise more exploration and production.

The clause that a premium will be paid for gas discoveries henceforth made in deepwater and ultra-deepsea as well as high temperature, high pressure finds, will attract investments, he said.

The revised gas price would be applicable to all gas produced from nomination fields given to ONGC and OIL India, New Exploration and Licensing Policy (NELP) blocks, some pre-NELP blocks and coal-bed methane blocks.

The new prices would not apply to small and isolated fields in nomination blocks and those pre-NELP blocks wheregovernment approval has not been provided under the production sharing contract.

With inputs from PTI