2nd UPDATE: ONGC 1Q Net Down 24% On Sales Discounts, Lower Output

(Adds comments from chairman, details, BP asset purchase details) By Rakesh Sharma and Eric Yep Of DOW JONES NEWSWIRES NEW DELHI (Dow Jones)--Oil and Natural Gas Corp. (500312.BY), India's largest oil producer by output, Thursday reported a 24% decline in its quarterly net profit, lagging analysts' estimates, as it was hit by discounts on sales to state-run fuel retailers. ONGC expects a "better year ahead," helped by a recent hike in gas and oil product prices, Chairman R.S. Sharma told a news conference. Net profit in the first quarter through June fell to INR36.61 billion from INR48.48 billion a year earlier, the state-run oil and gas explorer said. The net profit trailed the INR42.48 billion average of estimates in a Dow Jones Newswires poll of 13 analysts. Sales fell 8% to INR136.66 billion from INR148.79 billion, hurt by lower crude price realizations, after discounts. Unlike their global peers--who are expected to post higher profits for the April-June quarter--India's state-run oil and gas majors haven't reaped the full benefits of higher crude prices and better refining margins because they sell products at discounted prices. ONGC, Oil India Ltd. and GAIL (India) Ltd. give discounts on crude oil and product sales to state-run fuel retailers as part of the federal government's mechanism to compensate retailers for selling auto and cooking fuels at discounted prices to help tame inflation. ONGC's gross realization on crude rose 33% year-on-year in the first quarter to $80.80 a barrel, but after discounts to state-run oil marketing companies, its net realization fell 18% to $48.04 a barrel from $58.25 a barrel a year earlier. Discounts on crude sales shaved INR31.19 billion off ONGC's profit. ONGC's profit and revenue should rise in the coming quarters as India raised auto and cooking fuel prices on June 25, lifted state control over gasoline prices and said diesel prices will also eventually be market-driven, all of which will lessen ONGC's subsidy burden. ONGC also expects an annual addition of INR35 billion in net profit and INR55 billion in revenue as the government allowed it and Oil India to more than double the price of gas they sell from some blocks to $4.2 per million British thermal units from June 1. Oil, Gas Production On a standalone basis, ONGC's crude oil output during the quarter fell about 1% to 6.06 million tons. Including joint ventures, ONGC's crude oil production during the quarter rose 1% to 6.6 million tons. Consolidated gas output during the quarter rose 0.3% to 6.41 million tons. ONGC has been facing a decline in crude oil output as it hasn't been able to bring any new fields into production and the major fields it operates have been in production for decades. ONGC expects crude production to rise to more than 28 million tons in the year ending March 2013 from 24.86 million tons in the year ended March 2010. It also forecasts gas production to rise to more than 72 million standard cubic meters a day from 63 mmscmd during the same period as it brings new fields into production. Buying BP's Assets ONGC is in talks with state-run Oil & Gas Group, or PetroVietnam, to acquire BP PLC's (BP) stake in Vietnam's block 06.1, Sharma said. "We will appoint the merchant bankers," he said, but didn't give any details on timelines and valuation. ONGC's overseas investment arm, ONGC Videsh Ltd, currently holds a 45% share in the block, OVL's website showed. BP holds 35% and the rest is held by PetroVietnam. BP wants to sell its stake to raise funds to help pay for cleaning up the Gulf of Mexico oil spill. -By Rakesh Sharma and Eric Yep, Dow Jones Newswires; +91-11-4356-3334; rakesh.sharma@dowjones.com (END) Dow Jones Newswires July 29, 2010 09:51 ET (13:51 GMT)