Q3 profit may be hit by subsidy: ONGC

State-owned Oil and Natural Gas Corp's third quarter profits may be hit by a higher subsidy payout to cover oil marketing companies' massive losses on fuel sales,Chairman R S Sharma said today.

State-owned Oil and Natural Gas Corp’s third quarter profits may be hit by a higher subsidy payout to cover oil marketing companies’ massive losses on fuel sales,Chairman R S Sharma said today.

“The third quarter is looking bad (for earnings),” he told reporters here. “Higher crude prices are disadvantageous to us,as they lead to an increased subsidy burden,” he said.

In tandem with a rise in crude prices,the revenue loss of refiners Indian Oil,Hindustan Petroleum and Bharat Petroleum also rises,as they sell auto and cooking fuels at prices dictated by the government. One-third of the revenue loss is met by upstream firms ONGC,Oil India and GAIL.

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“Crude oil produced by ONGC accounts for around 20 per cent of the total oil consumed by refiners. Against this,ONGC’s share of the subsidy is 28 per cent,” Sharma said.

Sharma said a crude oil price of USD 70-80 per barrel was ideal for both the oil producer and consumer.

As crude oil prices rise beyond this level,ONGC’s retention price,or the net price it gets after paying for fuel subsidies,reduces.

ONGC’s net realisation on the crude oil it produced was lower in 2007 — when crude prices averaged USD 64.20 per barrel globally — than the previous year,when crude oil prices hit a record USD 147 a barrel,he said.