New Delhi, July 18: Subsidy obligations on cooking gas (LPG) and kerosene will prevent ONGC from cashing in on the surge in crude oil prices in the international markets.

A modest increase in net profit is on the cards in the first quarter despite crude prices ruling above the $70-per-barrel-mark in recent months.

A senior ONGC official told The Telegraph that its gross price realisation in the first quarter is $71.3 per barrel, but net prices will be lower as it will have to sell LPG and kerosene at a discount to the public sector oil majors, Indian Oil, Bharat Petroleum and Hindustan Petroleum.

Sources said the discount could be above $25 per barrel.

The ONGC board, which will meet on July 26 to finalise its first quarter results, is keeping its fingers crossed on the extent of discount to be determined by the government.

In the last fiscal, ONGC had to sell oil for $42.34, which was at a considerable discount to the ruling global price of $59.66.

Though crude prices increased consistently in the last fiscal, ONGC earned a net profit of Rs 14,431 crore, an increase of just 11 per cent from the profit of Rs 12,983 crore in the previous year. If there were no subsidies, profit could have been higher by Rs 7,210 crore.

However, ONGC Videsh is expected to rake in higher profits as it sells its crude in the international market.

Another area of concern for the company is the low price realisation in natural gas ? it is forced to sell cheap at $1.75 per million British thermal units (mbtu) for the benefit of power and fertiliser PSUs against the price of $4.75 charged by the private sector.

Gas comprises 45 per cent of ONGC’s output but contributes only 13 per cent to its revenues.

Ecuador field

ONGC is in talks with Ecuador to take over an oil field that Quito had taken from US firm Occidental over tax disputes.

Ecuador external affairs minister Francisco Carrion said only state-owned companies from across the world have been invited to bid for Block 15. “Whichever company wins the bid will be given the production rights for six months till January next year from the block which has a potential capacity of two million barrels a month,” he told reporters here on the sidelines of a CII interactive meeting.