ONGC beat Oil India in Q1, but the tables could turn soon

Mint

4 days ago

Oil exploration and production companies Oil and Natural Gas Corp Ltd (ONGC) and Oil India Ltd reported divergent earnings for the June quarter (Q1FY26).
ONGC's standalone Ebitda remained unchanged year-on-year at ₹18,700 crore with the decline in crude oil prices being offset by lower statutory levies. Oil India's Ebitda fell by 19% to ₹2,100 crore, weighed down by higher 'other expenses'. However, ONGC faces the challenge of arresting its declining production even as Oil India is looking at a consistent rise in production.
Sales volume (including share in joint ventures) stood at 8.6 million tonnes of oil equivalent (mmtoe) for ONGC, and 1.52 mmtoe for Oil India, each clocking about 1% growth. Oil India's sales were affected by plant shutdowns by some of its consumers. ONGC's revenue fell 10% to ₹32,000 crore, supported by higher new wells gas (NWG) volumes, against Oil India's 14% revenue drop to ₹5,000 crore.
While ONGC's crude oil price realisation fell by 20% to $66.4 per barrel, gas realisation was up 9% to $7.6 per million British thermal units (mmbtu), helped by NWG, which fetches a price premium of 20% over conventional gas. Management expects NWG volumes to account for 13-14% of total gas production in FY26 and 25% in FY27.
For Oil India, while crude oil realisation fell at nearly the same rate to $66.2, gas realisation also fell marginally to $6.4 per mmbtu in the absence of NWG benefits. Oil India has also sought permission from the ministry to sell NWG gas at a premium, in line with ONGC.
ONGC's production woes
Despite better profitability, ONGC has struggled to raise its production, with the KG basin ramp-up being delayed by the early monsoon, hampering infrastructure build-up. Management has cut its production guidance for FY26 by 3% to 41.1 mmtoe, which means no incremental production over FY25.
The basin currently produces 3 million standard cubic metres (mmscmd) of gas, which is expected to hit a peak of 10 mmscmd in FY27. Despite the delays, the block holds hope for the company, which has seen production decline by more than 5% over FY22-25. JM Financial Institutional Securities estimates cumulative output growth of 8-10% over FY26-28 for ONGC, driven by the KG basin and western offshore blocks.
Oil India has fared better on production, clocking a 4.3% compound annual growth rate (CAGR) over the past three years. The company aims to achieve production of 7.4 mmtoe in FY26, a 9% increase over FY25. It expects higher output after the start of phased commissioning of the Numaligarh refinery expansion project in December. An Antique Stock Broking report projected the company's oil and gas output would grow at a 5% and 15% CAGR over FY25-28.
Shares of both oil majors have been bogged down by the decline in crude oil prices. Oil India stock is down 40% over the past year and ONGC's is down 28%. Oil India trades at enterprise value (EV) of 8.1 times estimated FY26 Ebitda, supported by a better production outlook, as per Bloomberg. ONCG's EV/Ebitdta multiple is 5. With crude prices expected to remain subdued in the foreseeable future, production ramp ups will determine the movement of the stocks from here.