Motilal Oswal

Target: ₹90

CMP: ₹71.30

ONGC’s oil and gas sales and net realisation ($41.4/bbl; negative 31 per cent y-o-y) stood in line with estimates. We have built in oil/gas production at 23.3mmt/24.8bcm for FY21, as per the management’s earlier guidance.

Currently, OPEC+ production cuts stand at 7.7 million bopd (pertaining to August 2020) and the group is scheduled to meet on November 30 and December 1 to decide on easing cuts by an additional 2 million bopd from January 2021.

We forecast a crude oil price of nearly $45/bbl for H2FY21 and expect prices to remain stable around current levels in the medium term. However, we highlight that a change of $5/bbl in oil price realisation would raise ONGC’s EBITDA (consolidated/standalone) by 7 per cent/12 per cent for FY22.

ONGC has guided that KG basin will see some delay in production as many vendors have enforced force majeure. Although gas production has been delayed, we expect a significant jump over the next 3-4 years led by various projects that ONGC been working on.

Despite the delay, ONGC is expected to grow its gas production in FY22, with efforts to arrest the decline in oil production from age-old fields (accounting for 60–70 per cent of total oil production).

Despite domestic gas (APM) price ceiling going down, production from KG basin would not be impacted.