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Motilal Oswal Report
For the past 16 years, Oil and Natural Gas Corporation Ltd.'s reserve replacement ratio has been consistently above 1x. However, continued project execution delays, among other things, have resulted in lack of growth in oil production since FY05 and gas production since FY19.
For 10 quarters, domestic APM gas price was below $3/metric million British thermal unit (net calorific value), roughly the cost of gas production for ONGC. For another eight quarters, the company barely made any money on its gas production with domestic gas prices being below $3.5/mmBtu (NCV).
The floor of $4.0/mmBtu recommended by Kirit Parikh, thus, provides a fillip to its profitability from the nominated fields as well as incentivises ONGC to raise production that would garner a 20% premium over the prevailing APM gas price.
With increased visibility of positive outcome based on these two triggers, we are optimistic ONGC.
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