Rising realizations buoy ONGC despite production issues


Rising global crude oil prices may be hurting most sectors, but for India’s largest upstream oil and gas producer Oil and Natural Gas Corporation Ltd (ONGC), it came as a welcome offsetting factor against production challenges. Indeed, ONGC’s September quarter performance showed crude realizations surged even as oil and gas production wobbled. The upshot is that analysts have increased the firm’s earnings per share estimates. Those at Emkay Global Financial Services Ltd have raised FY22 and FY23 standalone earnings by 22% and 11%, respectively.

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ONGC’s crude realization rose 67.6% year-on-year (y-o-y) and 6% sequentially to $69.36 a barrel. This helped gross revenues rise to 45.9% y-o-y and operating profit see a sharp uptick of 56% despite production challenges. Analysts at HDFC Securities Ltd said, “We expect oil price realization to increase to $69 a barrel in FY22 and $71 a barrel in FY23 versus $44 a barrel in FY21, given the expected global economic rebound, post covid.” Domestic gas prices too have been revised upwards during the second half of FY22 by 62% to $2.9 per metric million British thermal unit (mmBtu) from $1.79/mmBtu earlier. Given the rising global gas prices, analysts expect further price hikes during the next six-monthly review. Those at HSBC Securities and Capital Markets (India) Pvt. Ltd estimate a gas price of $6.5/mmBtu for FY23/24.

Meanwhile, crude oil production fell 3.8% y-o-y and gas production was down 7% y-o-y. ONGC attributed this to conditions created by cyclone Tauktae and the impact of covid-19. Analysts believe that oil and gas production may normalize in the coming quarters but the mood is cautious. Those at Motilal Oswal Financial Services expect ONGC’s gas production to post a CAGR (compound annual growth rate) of 7% over FY21-24.

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