Acquisition of loss-making stakes worries ONGC officials
The series of acquisitions of loss-making stakes from the private players in the Krishna-Godavari Basin by the Oil and Natural Gas Corporation (ONGC) have remained a major cause for concern among the officials who have been associated with the public sector major for several decades and played a key role in its successful expansion. They are terming the deals as “forcible purchases” by the ONGC and seeing it as the result of intended involvement of politicians to benefit the private players. Cairn India and the Gujarat State Petroleum Corporation (GSPC) have already offloaded their assets to the ONGC, while the buzz is that another corporate giant is to follow suit. According to highly placed sources, the corporate major is all set to transfer its assets in the KG Basin to the ONGC. Deliberations are in progress at the high-level with regard to the price fixation and the very recent GSPC acquisition deal has given a boost to those negotiations. The ONGC, which has already been developing the Ravva oil and gas field in the KG Basin in association with Cairn India, is now acquiring a major share in the GSPC’s Deen Dayal West field block located near Mallavaram, about 35 km from here. Despite severe criticism from different quarters, the Central government has prompted the firm to acquire 80 per cent participating interest of the GSPC along with operatorship rights, at a purchase consideration of $995.26 million. The code of conduct is deterring the officials from expressing their views in public and their efforts to discourage the ONGC Board from clinching such deals are in vain. “Decisions on acquisitions should be taken by the board of directors basing on expert opinion, but not by the political leaders. The forcible acquisitions of loss-making assets will have an adverse impact on the overall performance of the ONGC very soon,” a senior official associated with the ONGC has told The Hindu. “Assets belonged to the private and corporate majors in the KG Basin are nothing but the off-shoots of the ONGC, as we are the foremost explorers of oil and natural gas here. After thoroughly enjoying profits from the assets, the firms are offloading them to the ONGC for a maximum price following drop in the revenues,” another senior official has pointed out. “The deal in progress is much bigger than that of the Cairn India and the GSPC and it may be pushing the ONGC into heavy losses soon,” lamented another official, who has been transferred from the KG Basin. Though there is an instance of the ONGC turning the fortunes for the loss-making Mangalore Refineries and Petrochemicals Limited following its acquisition, the officials term it as “rarest of the rare” case. Pittsburgh Steelers Authentic Jersey
Petronet LNG: Rising LNG prices a concern
Rising spot prices of liquefied natural gas (LNG) could spoil the party for Petronet LNG (Petronet), which has been a favourite of the street post delivering healthy volumes in the latest September quarter. The fact that spot LNG prices are trading closer to its two-year high levels could weigh on LNG demand in India, believe analysts. This in turn could impact Petronet’s volumes as well as financial performance going ahead. Rising LNG prices reduces its competitiveness versus other fuels such as Naphtha and have already started hitting consumption demand. LNG consumption from the power sector, for instance, has declined 41 per cent on a month-on-month basis in October. “With the restart of Dabhol capacity post monsoons, ShellHazira’s additional freed up capacity and imminent commissioning of the Mundra LNG terminal in FY18, near term upsides to capacity utilisation for Petronet’s Dahej terminal is constrained, in our view,” says Amit Rustagi, analyst at IDFC Securities. Notably, most analysts covering the stock are factoring in 100 per cent capacity utilisation at Petronet’s Dahej terminal in FY18, which could now be at risk. With gains of about 59 per cent in the past one year, the Petronet scrip has been on a roll so far and commands rich valuation of 17 times FY18 estimated earnings. The valuation does not adequately factor in the risks emanating from rising spot LNG prices, and hence is susceptible to downsides from here on. On the flip side, ramp up in use or pay contracts could provide some support to Petronet’s earnings and cap the earnings downside thereof. Amongst Petronet’s key expansions, its Kochi pipelines should take another two years at least to complete and could see lower losses once Bharat Petroleum’s Kochi refinery ramps up. Petronet expects its Gorgon (Western Australia) facility to witness full ramp up in July 2017. Analysts at Credit Suisse though believe that given that Gorgon prices are 50-60 per cent higher than spot LNG it will be challenging to sell in the Indian market. In this backdrop, investors would keenly watch out for management commentary on the demand trends and the outlook from here on. The use or pay contracts lends visibility to Petronet’s earnings and drive expectations of 22-25 per cent compounded annual growth in its earnings over the next couple of years. These expectations, however could be toned down to factor in the recent weakness in consumption demand and weigh on Petronet’s stock price and valuations, believe analysts. A.J. Green Womens Jersey