ONGC rallies 8% on upbeat volume guidance; Oil India surges 9%

ONGC management expects total crude oil/gas production volume (incl. JV) to rise by 12 per cent/27 per cent to 23.1mmt/25.9mmt by FY27, mainly driven by KG-98/2 and Daman upside development.

Shares of state-owned upstream companies Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) have rallied up to 9 per cent on the BSE in Wednesday’s intra-day trade deals amid heavy volumes, erasing their previous two days losses.

In past two days, ONGC and OIL has slipped 7 per cent and 6 per cent, respectively. ONCG had hit a record high of Rs 344.60 on August 1, while, OIL touched all-time high of Rs 652.20 on July 12.

At 10:46 AM, these stock were trading higher in the range of 7 per cent to 8 per cent, on back of two-fold jump in their average trading volumes. In comparison, the BSE Sensex was up 1.1 per cent at 79,485 levels.

 

ONGC management expects total crude oil/gas production volume (including joint venture) to rise 12 per cent/27 per cent to 23.1mmt/25.9mmt by FY27, mainly driven by KG-98/2 and Daman upside development. Gas production from the KG-98/2 asset, which will begin in Q4FY25, is expected to ramp up to 6mmscmd by FY25 end, while oil production could ramp up to 30,000bopd by Q4FY25. ONGC expects capex to normalise at Rs 30,000 crore in FY25/FY26.

“ONGC has guided for 12 per cent/27 per cent growth in crude oil/gas production volume over the next three years, driven by rising production from KG 98/2 asset, Daman upside development, and monetisation of stranded gas reserves. While volume guidance is upbeat, execution is vital, and should ONGC achieve guided,” Motilal Oswal Financial Services said in Q1FY25 result update. The brokerage firm reiterates 'Buy' rating on the stock with a target price of Rs 360 per share.

Analysts at Nomura expect ONGC to benefit in the coming years from likely increase in oil and gas volumes, favorable cess and royalty structures and freedom from Special Additional Excise Duty (SAED) on KG 98/2 volumes, and a rising share of gas volumes based on premium pricing from end-FY25. 

“We conservatively build in oil volume growth of 4 per cent and gas volume growth of 6 per cent over FY24-26F; if ONGC is able to deliver on its volume growth guidance, it would drive further re-rating for the stock,” the brokerage firm said with ‘Neutral’ rating on the stock.

Analysts at ICICI Securities have reiterated ‘Buy’ rating on ONGC with a target price of Rs 375 per share. Stronger cashflow and production outlook, meatier subsidiary earnings over the next two–three years and higher investment value of listed investments drive the uptick in our target price, the brokerage firm said.

“Going forward, ramp-up of the KG basin asset remains the key performance driver over FY25-26E – this remains the key to production growth and earnings strength. We also expect a recovery in HPCL/MRPL’s earnings prospects coupled with reducing leverage in ONGC’s consolidated balance sheet,” ICICI Securities said in Q1FY25 result update.

Meanwhile, the board of directors of OIL are scheduled to meet on Thursday, August 8, 2024, to consider and approve the company’s Q1FY25 result.

While OIL initially started off as an exploration and production (E&P) company, it has gradually diversified its presence across the entire hydrocarbon value chain. OIL directly or indirectly has presence in refining, petrochemicals, oil and gas transportation, city gas distribution, renewable energy and green energy initiatives through various subsidiaries, associates and joint ventures. Furthermore, the company expanded its reach in the international markets, wherein it currently has participating interest in oil/gas blocks in seven countries.

OIL has also strategically invested in Numaligarh Refinery (NRL), with the aim of diversifying its presence in the oil refining segment. NRL’s operating performance has remained healthy, supported by high gross refining margin. This is contributed by the 50 per cent excise duty exemption the company is entitled to by virtue of government incentives since its inception.

NRL is undergoing expansion (expected to be commissioned in September 2025) of its refining capacity to 9mtpa (from 3mtpa currently) at an estimated capex of Rs 28,000 crore.

The brokerage firm Sharekhan estimate NRL’s EBITDA could almost double with an annual Ebitda potential of greater than Rs 9,000 crore post expansion and could generate a meaningful long-term value for OIL. A potential IPO for NRL, analysts said, could unlock value for investors going forward.