 "ONGC surges 5%, hits new high; Oil India soars 8% in weak market; know why")
Shares of state-owned upstream companies Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) were in demand on Thursday. ONGC, OIL shares rallied up to 8 per cent on the BSE in Thursday’s intraday trade in an otherwise weak market on a healthy outlook. In comparison, the BSE Sensex was down 0.4 per cent at 79,831 at 11:36 AM.
Individually, ONGC share price hit a new high of Rs 333.8, rising nearly 5 per cent, after the company gave an update on Block KG-DWN-98/2 on Wednesday, post market hours. The stock surpassed its previous high of Rs 333.50 touched on July 19, 2024.
ONGC informed that the company had commenced oil production from the Block KG-DWN-98/2 Cluster-2 asset via a floating production, storage and offloading (FPSO) vessel in January, 2024.
The company has plans to open another well and flow gas to onshore terminal next month through the newly laid subsea gas pipeline, another milestone achievement in the offing, ONGC said.
Earlier on July 16, ONGC had informed that the company has commenced its production from the Coal Bed Methane (CBM) block in Bokaro, Jharkhand.
CBM is an unconventional source of natural gas and an alternative source for augmenting India’s energy resource. It’s a humble beginning and initial production of 1,70,000 SCMD and expected to ramp up to 3,00,000 SCMD by the end of the current financial year, the company said.
ONGC is primarily engaged in exploration, development, and production of crude oil and natural gas. ONGC is also a player in the refining sector via its subsidiaries.
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ONGC has explored 19 of the country's 26 sedimentary basins for its hydrocarbon potential, having established eight producing basins up to date. It has 1.62 lakh square kilometres (sq. km) of acreage and has plans to increase it to 5 lakh sq. km by 2025.
The iconic ONGC ‘Sagar Samrat’ offshore drilling rig was officially inaugurated as a mobile offshore production unit (MOPU) on December 23, 2022. Also, ONGC commenced its first oil production from KG-DWN 98/2 block in the Krishna Godavari Basin in January, 2024 and the said block is expected to increase ONGC’s total production of oil and natural gas by 11 per cent and 15 per cent respectively. Hence, CARE Ratings expects ONGC’s production level to increase, going forward.
ICICI Securities and Motilal Oswal Financial Services (MOFSL) have ‘buy’ ratings on ONGC with target prices of Rs 340 per share each on higher KG output. Stronger cash flow and production outlook, coupled with meatier subsidiary earnings over the next two–three years and higher investment value of listed investments, may drive the uptick in target price.
"Going forward, the commencement of the large KG basin asset will likely fuel a material jump in production. We also expect conspicuous recovery in Mangalore Refinery and Petrochemicals (MRPL) and Hindustan Petroleum Corporation (HPCL) earnings prospects coupled with reducing leverage in ONGC’s consolidated balance sheet," ICICI Securities had said in its Q4 result review report.
"ONGC has guided for 6 per cent production volume CAGR over the next three years, driven by rising production from KG 98/2 asset, Daman upside development, and monetization of stranded gas reserves. While volume guidance is upbeat, execution is vital, and should ONGC achieve guided volumes, we see upside risk to our and Street earnings estimates,” MOFSL had said in its Q4 result update.
Meanwhile, the board of directors of ONGC is scheduled to meet on August 5, 2024 to consider and approve unaudited financial results of the company for the quarter ended June 30, 2024 (Q1FY25).
OIL share price surges
Shares of OIL surged 8 per cent to Rs 587.95, snapping its 15 per cent decline over the past six trading days. The stock had hit a record high of Rs 652.50 (adjusted to 1:2 bonus shares) on July 12.
OIL is the second-largest government-owned hydrocarbon exploration and production company in India. It had domestic reserves (2P) base of 876 million barrel of oil equivalent (MMBOE) of natural gas and 496 MMBOE of crude oil, as on March 31, 2024, with exploration rights over 63 blocks (five are non-operating) in India with an area of ~64,000 square kilometre.
Last month, OIL and Numaligarh Refinery Limited (NRL), OIL’s material subsidiary company, signed a new long-term definitive agreement for the transportation of additional petroleum products through OIL’s Numaligarh-Siliguri Product Pipeline (NSPL) following the commissioning of NRL expansion project. In line with Hydrocarbon Vision 2030 for Northeast India, NRL is executing an NRL expansion project to enhance capacity from 3 to 9 MMTPA.
With aggressive production growth, 3 x expansions in NRL capacity and improving leverage, OIL remains on a strong footing for FY25-27E, according to analysts at ICICI Securities.