![](\"https:\/\/im.rediff.com\/money\/2017\/jan\/03ongc.jpg?w=670&h=900\")
<\/p>\nCrude and gas supply concerns have eased amid reports that Israel and Hamas have struck a peace deal.<\/p>\n
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The International Energy Agency estimates oil demand may drop slightly in calendar 24 but Opec probably has enough pricing power to maintain $80\/ barrel Brent prices.<\/p>\n
Russia’s share of India’s crude imports remained strong at about 35 per cent in September 2023.<\/p>\n
Discount on Russian crude to India narrowed to $3\/bbl in September 2023 vs $6\/bbl in August 2023.<\/p>\n
This price point is still a reasonable spot for upstream players like ONGC and Oil India Limited (OIL).<\/p>\n
Both PSUs appear to have an upside, given the current scenario.<\/p>\n
ONGC’s Q2FY24 results were mildly below consensus.<\/p>\n
Reported Ebitda stood at Rs 1,8360 cr (down 2 per cent Y-o-Y).<\/p>\n
PAT came in line at at Rs 10220 cr (down 20 per cent Y-o-Y).<\/p>\n
Net ONGC’s Q2FY24 crude oil sales were at 4.7mmt, while gas sales stood at 4bcm.<\/p>\n
VAP sales were also in line at 651 thousand mt.<\/p>\n
Net of a windfall tax, realisation stood at $73\/bbl.<\/p>\n
ONGC reported in line revenue of Rs 35,160 cr (down 8 per cent Y-o-Y).<\/p>\n
The good news is that management expects oil production from KG-DWN-98\/2 to start in Q3FY24.<\/p>\n
The projected peak oil production will reach 45 kilobarrels per day by FY25.<\/p>\n
Additionally, gas production may escalate to 10 million standard cubic metres per day (mscmd) by FY25.<\/p>\n
Windfall taxes allow a post-windfall realisation of up to $75\/bbl from Q3.<\/p>\n
Under the new gas pricing policy, gas produced from new APM fields or Intervention in existing fields will attract 20 per cent premium over APM prices.<\/p>\n
Around 6-8 per cent of ONGC’s gas production comes from new wells.<\/p>\n
Gas price may be assumed at $6.5\/mmBtu from Q3FY24.<\/p>\n
ONGC targets increased production by 1 per cent in FY24 and 5 per cent in FY25.<\/p>\n
Exploration in 2HFY24 will focus on Mahanandi Basin, Western Offshore, Assam Basin, and Bengal Basin.<\/p>\n
The company will also be infusing an additional Rs 18,300 crore in OPAL.<\/p>\n
It intends to seek permission to utilise gas from new wells and well interventions in OPAL.<\/p>\n
Management expects OPAL to turn profitable from FY25 which is also a positive signal.<\/p>\n
However, consolidated estimates may be downgraded somewhat due to the weak performance by OVL and ONGC’s stake in MRPL.<\/p>\n
OIL reported better Q2FY24 results in terms Adj.<\/p>\n
Ebitda at Rs 2,630 crore, led by higher revenue on higher sales-to-production ratio and lower opex.<\/p>\n
Adj. PAT stood at Rs 2,020 crore, with higher other income.<\/p>\n
Reported PAT dropped to Rs 330 crore due to a one-time provision of Rs 2,360 crore for GST on royalty.<\/p>\n
Consolidated adjusted EPS was up 18 per cent Y-o-Y.<\/p>\n
Crude production was in line at 0.83mmt (up 6 per cent Y-o-Y), while gas was at 0.81bcm (down 2 per cent Y-o-Y).<\/p>\n
NRL’s operations resumed post the shutdown; with more than 100 per cent utilisation and basic GRM up to $16.0\/bbl in Q2 earnings recovered to Rs 740 crore.<\/p>\n
Guidance is for crude production target at 3.5-3.6mmtpa for FY24, while gas could see 2-3 per cent Y-o-Y growth.<\/p>\n
Management refrained from guidance beyond FY24 but targets production CAGR of 4-5 per cent for the next 2-3 years. NRL’s recent rights issue covers the equity requirement for expansion.<\/p>\n
Out of OIL’s total consolidated capex plan of more than Rs 13,000 crore for FY24, Rs 4,900 is standalone and Rs 8,700 crore for NRL.<\/p>\n
Out of the total NRL expansion capex of Rs 28, 000 crore, Rs 13,000 crore has been spent till September 23 end.<\/p>\n
The rest is to be incurred by FY25-end. Both stocks look to be undervalued in a scenario where they are getting close to Rs 75\/ barrel – the maximum post-windfall tax.<\/p>\n