Oil spike spurs exploration stocks

STOCK REPORT

The rising tension in the Middle East saw stocks of up-stream oil companies such as ONGC, Reliance and Hind Oil go up as crude prices crossed the $70 mark for the first time since Hurricane Katrina wrecked US oil supplies nearly eight months ago.

With no sign of resolution of the Iran nuclear stand-off, increasing crude prices are likely to result in higher earnings for exploration companies such ONGC and Reliance, despite government price controls.

While ONGC moved up 5.16 per cent to Rs 1,307.55 and Reliance by 4.66 per cent to Rs 891.25, the smaller Hind Oil Exploration was also up by 7.77 per cent at Rs 176.05. As a result, the BSE Oil & Gas index moved northwards, up 3.22 per cent against 2.4 per cent gain for the Sensex.

"No doubt that rising crude prices are favouring oil companies but positive news from the ONGC counter seems to have triggered the swift march. The company has come out with better than expected results despite the production loss due to fire. The company has tied up with Gulf Oil for exploration of oil in the Middle East. The company plans to invest Rs 40,000 crore in SEZ projects," said Sumeet Rohra of Antique Stock Broking.

During the past calendar year, the Oil & Gas index was moving in tandem with the Sensex, but slowed down from the beginning of January 2006. The Oil & Gas index has significantly underperformed the broader market barometer index. The Oil index gained around 14 per cent against the Sensex gain of 21 per cent.

Despite subsidy burdens, the ONGC group, which includes Mangalore Refineries as well, had posted a gross profit of Rs 15,485 crore on a turnover of Rs 86,414 crore for 2005-06.

The company itself had registered a profit after tax (PAT) of Rs 14,175 crore during the year, up 9 per cent, while its turnover had improved from Rs 46,712 crore in 2004-05 to Rs 50,900 crore last year.