Oil & Natural Gas Corp. Ltd (ONGC) posted rather muted December quarter (Q3) results, impacted by the continued drop in crude oil prices and stagnant volumes. Higher gas realization, though, brought some comfort.
Standalone EBITDA declined by 9% year-on-year to ₹17,300 crore, while revenue fell 6% to ₹31,500 crores. Consolidated revenue was flat at ₹1.67 trillion and EBITDA increased by 3% to ₹27,400 crores. Lower crude prices improved the profit margins of its downstream refining subsidiary, Hindustan Petroleum Corp. Ltd.
The global crude market currently faces surplus supplies and dull demand conditions, suppressing prices even amid intermittent flare-ups triggered by geopolitical developments. The upshot: The state-owned enterprise’s standalone Q3 crude price realization hit a 15-quarter low of $61.6 per barrel, down 15% year-on-year.
It helps that gas realization was up about 6% to ₹23.2 per standard cubic meter (SCM), aided by a higher share of new wells gas (NWG), which is eligible for a 20% premium over the price based on the administered price mechanism. NWG contributed 18% of Q3’s total gas revenue and this share is expected to increase to 24% in FY27 and over 35% in 3-4 years with the commissioning of new gas fields, the management said on the earnings call.
Output numbers disappointed too. ONGC’s oil and gas production including its share in joint ventures fell 1.3% to 10.2 million tonnes of oil equivalent (mmtoe). The decline was lower in the first nine months of FY26 at 0.5%.
However, there could be a reversal in FY27, with the management expecting production to reach 42.5 mmtoe, over 3% higher than FY26 estimates, and FY28 growth to exceed that of FY27. This would be aided by gas production growth from the KG-98/2 basin to 5-6 million standard cubic meters per day (mmscmd) by FY27-end, from 3 mmscmd now.
EPS raised
Additionally, the Daman upside project gas should commence in Q1 of FY27, ramping up to 4-5 mmscmd in H2FY27. In view of the increased production and higher gas prices, ICICI Securities raised its earnings per share estimates for FY27-28 by 5-6%.
“We see net gas realization averaging ₹26.2 per scm over FY26-28 – well above the ₹20.8 per scm average seen in FY23-25,” the broking firm said.
Production from ONGC’s Mumbai High (MH) fields is also rising, aided by technical intervention by BP. Output from the MH fields was 7% above the company’s expectations in Q3, as per the management. BP has committed to deliver about 10 million tonnes of incremental oil from these fields over the next 10 years.
ONGC’s capital expenditure was ₹24,000 crore in 9MFY26 and its FY27 guidance is ₹32,000 crore-33,000 crore. It is currently undertaking 20 projects, entailing a total investment of ₹77,000 crores. The change of government in Venezuela, where the company has stakes in the San Cristobal and Carabobo-1 projects, is expected to give a push to its international operations and the lifting of sanctions should help restart the operations.
Better production outlook and HPCL’s improving margins have supported the ONGC stock’s 16% gain over the past year. The stock trades at an enterprise value of 4.9 times FY27 estimated Ebitda, as per Bloomberg consensus, marginally above its long-term average.
While expected production growth could keep investor interest alive, sustained pressure in crude prices remains a key risk.
“Every $5 per barrel rise/fall in net crude realization results in an increase/decrease in our EPS and valuation by 8-10%,” JM Financial Institutional Securities said in a 13 February report.
