Rising oil & gas prices may boost ONGC profitability

Rising oil & gas prices may boost ONGC profitability

The company’s net profit fell 16.5% to Rs 11,246 crore year-on-year on lower production and a sharper fall in its realisations on oil and gas sales.

The ONGC management expects nearly 50-60% increase in gas prices in the second half of the fiscal with the recent strength in international rates. The current price for gas produced from local nominated fields has been revised to an all-time low of $1.79/million British thermal units (mBtu) by the government, which is much below the breakeven point of $3.2-3.5/mBtu for most fields. For ultra-deep-water gas fields like the Krishna Godavari basin, which have higher pricing and marketing freedom, the current price cap is set at $3.62/mBtu.

S&P Global Ratings, which has raised the forecast for Brent crude oil price for the rest of 2021 by $5 to $65/barrel, pointed out that benchmark crude price estimate is significantly higher ONGC’s realisation of $43/barrel in FY21. Higher crude prices, along with about 7% growth in the company’s production volume, should push its earnings before interest, taxes, depreciation and amortisation (Ebitda) up by 20-25% to about Rs 85,000 crore during FY22, S&P Global said. “We estimate the company’s debt-to-Ebitda ratio will strengthen to about 1.6x during this period, from about 1.9x in FY21,” the agency noted.

In FY21, ONGC’s Ebitda on a consolidated basis fell 8% annually, owing to a drop in both volumes and realisation. Oil output fell 3% while realisation fell 27%. For gas, production fell 9% year-on-year and realisation was down 38%. In Q4FY21, ONGC’s oil realisation at $58/barrel was, however, 34% higher than the preceding quarter.

Analysts at Nomura said there is a strong case for revision of domestic gas prices for legacy fields, and doing away with ceiling price for difficult fields. HSBC Global Research expects domestic gas price to increase to $3.2/mBtu, and the deepwater ceiling price to rise to $9/mmBtu by FY22-end. HSBC has also raised its FY22 profit forecast for ONGC by 1% over its initial estimate to Rs 27,228.5 crore. In FY23, it expects ONGC to earn a profit of Rs 30,591.5 crore in FY23.


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