The global oil and gas industry has been under stress since 2014. Adding to the woes, COVID-19-related restrictions on movement across geographies led to a massive drop in oil prices - right from a high of more than $110 per barrel to the US oil futures even turning negative. This indicated that traders were even willing to pay to sell their oil contracts. However, oil prices recovered on the back of record production cuts by the OPEC+ group of countries. The story was quite similar in the natural-gas sector, with natural-gas prices being almost half of their highs in December 2018.
Now oil companies have started registering profit growth on the back of lower oil prices and increasing margins. However, combined revenues of these companies fell by more than 17 per cent during the last quarter ended September 2020 on a year-on-year basis. With the world shifting from oil to other green-energy sources because of carbon emissions and the increasing focus on ESG (environmental, social and governance) projects, companies operating in these industries may continue to witness difficult times. However, the government's increased focus on a gas-based economy played in favour of gas companies.
On the other hand, companies in the power industry have recovered better than oil and gas companies as they witnessed the minimum impact of the pandemic. Apart from conventional energy sources, companies operating in renewable-energy sources have gained prominence.
Winners
Power Grid: Engaged in transmitting electricity from power-generation companies to discoms (distribution companies), Power Grid was able to deliver growth in both Q1 and Q2 of FY21. Since the company's area of business falls within the ambit of essential services, the company faced the minimal impact of the COVID-19-led lockdown. However, its capex plans for new transmission lines have been delayed by a few months.
Tata Power: The company recovered in the second quarter of the current financial year on the back of its solar EPC business and better performance of its coal joint venture, owing to lower coal prices. It has been quite aggressive on deleveraging at the company level, reducing its debt-to-equity ratio from 3.8 times in FY17 to currently at 1.5 times.
Losers
Oil-marketing companies: Plummeting oil prices and reduced fuel demand have taken a toll on oil-marketing companies, viz., Indian Oil, Bharat Petroleum and Hindustan Petroleum. Facing the brunt of lockdown-related restrictions on movement, these companies had to change their business strategies, with Bharat Petroleum slashing its capex plans by approximately 36 per cent in FY21.
City-gas-distribution companies: City-gas-distribution companies, such as Mahanagar Gas and Indraprastha Gas, witnessed 70-80 per cent fall in CNG demand from the transport and industrial sectors, which severely hit the revenues of these companies in the first two quarters of FY21. However, the gradual lifting of lockdown restrictions and re-opening of industries have renewed the demand for city gas. This trend is expected to continue on the back of several initiatives undertaken by the government.
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