Oil and Natural Gas Corporation Ltd.'s management as well as analysts tracking the stock remain positive of the company's production prospects. This comes on the back of an expected production ramp-up at the oil producer's key asset — KG Basin.
However, it is key to note that ONGC has consistently missed its production targets for the last six financial year and has also cut the production guidance for its KG 98/2 basin by 33-42% since FY18.
What Do Analysts Think?
Jefferies, in a Jan. 2 note, maintained a bullish outlook on ONGC Ltd., citing the expected production ramp-up at KG 98/2 from Q4FY25 to Q1FY26. After starting three new oil wells in Oct 2024, crude output rose from 12,000 to 25,000 barrels/day.
However, this remains 55% below the guided peak of 45,000 barrels/day by Q4FY25, which require the starting of five additional wells. Nuvama Research remains cautious due to ONGC's past production shortfalls.
Missed Production Targets
ONGC has consistently missed its production guidance in the past six years. The company has never managed to meet its guided oil production volumes over past six years.
In terms of its gas production targets, ONGC has met them only two out of the past six years.
Additionally, as per data ONGC has also missed its total production guidance consistently over the past six years. In FY23 and FY24, the company's standalone production guidance stood at 41 million metric tonnes of oil equivalent (mmtoe) and 44.9 mmtoe, respectively. The company also missed these targets by 2% and 12% respectively.
Guidance Lowered
ONGC's Q2FY25 earnings concall saw management reduce its total crude oil and gas production targets lowered.
ONGC Ltd. also substantially lowered its KG-98/2 basin peak oil and gas production guidance by 42% and 33% to 45,000 barrels per day and 10 million metric standard cubic meters per day since FY18, respectively.
Nuvama Research notes how the company has steadily pushed down the timeline for peak production at KG basin over the past years on execution-related issues.
Nuvama also notes how production locks in an average high drilling cost of $650,000 per day. This reduces the viability of the KG basin project amid reduced production guidance.
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