26-05-2025
ONGC needs a faster ramp-up from KG Basin to beat falling crude prices
Oil & Natural Gas Corp. Ltd (ONGC) reported a standalone Ebitda of ₹19,000 crore for the March quarter (Q4FY25), up 9% year-on-year, despite lower aggregate realization, thanks to higher sales volumes and lower statutory levies. However, an over fourfold increase in dry well write-offs caused ONGC's net profit to drop as much as 35%.
In comparison, Q4 revenue was flattish at about 1% year-on-year to ₹35,000 crore, with sales volume rising marginally by about 2%. Gross oil realization fell 9% to $73.7 per barrel, while average gas realization was up 6%. The higher gas price can be attributed to the rising share of new wells gas (NWG) that fetched a price of $9.2 per mBtu (million British thermal units) last quarter versus $6.5 for the rest. NWG now forms about 20% of ONGC's gas mix and is expected to grow by 10-15% over the next 5-6 years.
While ONGC's oil and gas production outlook is positive, it should be noted that the pace is slower than initial projections. Total oil and gas production for FY25 was 41.1 million tonnes of oil and oil equivalent (mmtoe), marginally lower than FY24 with slower ramp up of production from the KG 98/2 basin. While FY26 production is expected to increase to 42.5 mmtoe, the management has cut the guidance by about 5%.
Slower ramp-up of KG basin output, coupled with the downtrend in crude prices, is a worry. Antique Stock Broking has lowered its crude oil price assumption to $65 per barrel from earlier $75 and $70 for FY26 and FY27; and cut the Ebitda estimates by 20% and 15%, respectively. ONGC's crude oil realization in FY25 stood at $76.9 per barrel, down from $80.9 in FY24.
ONGC-BP collaboration
The company expects volume support with higher recovery from Mumbai High fields, after it appointed British Petroleum Plc (BP) as technical services provider in January. Mumbai High forms about 25% of the company's total domestic production.
As per ONGC, BP has indicated the potential to increase overall production by 60% from the fields over a ten-year period. Notably, BP achieved a 40% production increase in the Rumaila field through similar intervention. ONGC also hopes to get more global partners with the amendment in the Oilfield Regulation and Development Act, 1948 (ORD Act) in March, reducing regulatory uncertainty.
ONGC's consolidated capital expenditure (capex) for FY25 was ₹62,000 crore, including exploration & production (E&P) capex at ₹39,000 crore (37,500 crore in FY24), ₹18,000 crore in subsidiary ONGC Petro-additions Ltd (OPaL), and ₹4,600 crore towards acquisition of renewable energy assets. ONGC now has a renewable energy portfolio of 2.3GW, including under-construction projects.
OPaL's Ebitda loss is lower in FY25 at ₹320 crore compared to ₹490 crore in FY24. This should drop further with expected increase in realization by 8-9% after its exit from the Dahej SEZ, lower interest cost and change in feedstock sourcing. ONGC's FY26 capex guidance is ₹32,000-35,000 crore across E&P and renewables.
Hereon, investors will closely watch the volume pick-up from the KG basin, Mumbai High, and crude oil price movement.
ONGC's shares have been largely flat in 2025 so far and trade at an enterprise value of 5.2x FY26 estimated Ebitda, as per Bloomberg consensus. PL Capital's analysts caution that the key risk to its 'accumulate' rating recommendation is asustained Brent price of below $60 per barrel. 'With every $5 per barrel change in oil price realization, consolidated earnings per share is impacted by 8-9%," said the PL Capital report on 22 May.
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