Upstream oil cos in focus amid Iran-Israel war; ONGC, OIL surge up to 5%

Experts believe any escalation in the Iran-Israel conflict may lead to a rise in crude oil prices.

Shares of state-owned upstream oil companies such as - Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) surged up to 5 per cent on the BSE in Monday’s intra-day trade on expectations of rise in global oil prices amid the Iran-Israel conflict. In comparison, the S&P BSE Sensex was down 0.70 per cent at 73,749 at 11:37 am.

A war between the two nations has the potential to disrupt oil supplies in the Middle East, a major oil-producing region. Experts believe any escalation between the two nations may lead to a rise in crude oil prices.

Shares of ONGC rallied 5 per cent to Rs 279.25 on the BSE on back of over two-fold jump in trading volumes. The stock is trading close to its 52-week high of Rs 284.75 touched on March 5, 2024. A combined 35.78 million equity shares changed hands on the NSE and BSE.

Maharatna ONGC is the largest crude oil and natural gas company in India, contributing to around 68.2 per cent to Indian domestic production. It is also a significant producer of value-added products, such as liquefied petroleum gas (LPG), superior kerosene oil (SKO) and naphtha.

According to analysts, volumes for both oil and gas are estimated to increase, going forward, with new fields expected to ramp up production. The growth is likely to come from the KG-98/2 basin, where production has commenced from January 07, 2024.

The company 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.

Meanwhile, shares of OIL India surged 4 per cent to Rs 636.40 on the BSE in intra-day trade today. The stock had hit a record high of Rs 669.05 on April 3, 2024.

Sharekhan sees a risk-reward scenario turning favourable for OIL India, given a healthy earnings outlook for the core oil and gas exploration & production (E&P) business, led by a likely increase in oil and gas production over FY25-26 and potential value creation from Numaligarh Refinery Limited’s (NRL's) expansion to 9mtpa (from 3mtpa currently).

Management expects oil/gas production to register a robust CAGR of 8 per cent/26 per cent over FY2024E-FY2026E, led by higher drilling activity. The brokerage firm has increased our FY2024-FY2026 earnings estimate by 3-16 per cent to factor higher oil and gas production and lower operating cost.

The stability in oil and gas realisation along with recovery in oil/gas production is to drive 11 per cent CAGR in standalone earnings over FY2024E-FY2026E. Consolidated earnings to benefit from NRL expansion, the brokerage firm said with 'Buy' rating on the stock and target price of Rs 755 per share.