Oil & Gas shares in focus; Oil India hits 52-week high, ONGC up 3%

Shares of oil and gas companies were in focus as Oil India hit a 52-week high while Oil and Natural Gas Corporation (ONGC) was up 3 per cent on a healthy outlook.

On Thursday, the market price of Oil India rose to Rs 198.70 as the stock rallied 5 per cent on the BSE. In the past one month, the stock has jumped 15 per cent, as compared to a 7 per cent rise in the S&P BSE Sensex. Meanwhile, ONGC was up 3.5 per cent at Rs 123.10, trading close to its 52-week high level of Rs 128.45 touched on June 15, 2021. In comparison, the S&P BSE Sensex was down 0.12 per cent at 58,180 points at 10:09 am.

On Wednesday, after market hours, ONGC informed that rating agency ICRA has assigned 'AAA' credit rating for non-convertible debentures (NCDs) of the company for Rs 7,500 crore while reaffirming ratings of long-term and short-term facilities.

The rating reaffirmation takes into account the dominant market position of ONGC in the domestic crude oil and natural gas production business with large proven reserves, globally competitive cost structure, stable performance of its subsidiaries and its healthy financial position.

Recovery in crude oil prices seen from the lows of about $20/bbl during the end of April 2020 to around $70/bbl currently along with recovery in crude oil demand with the easing of lockdowns globally is expected to lead to improvement in the financial performance of the company. Moreover, the expected increase in domestic natural gas prices in the next revision will also be a positive, ICRA said in rating rationale.

The ratings also take into account the company’s excellent financial flexibility arising from its moderate gearing, large liquid investments, its sovereign ownership and strategic importance. The company’s production of both oil and gas declined in FY2021 owing to lower offtake by customers (owing to the pandemic) and a natural decline in the fields.

However, the company’s KG basin field (KG-DWN-98/2) has commenced gas production and the same is expected to scale up significantly besides which ONGC’s oil production is also expected to increase over the next few years which would aid the revenues and cash accruals, going forward, the rating agency said.

That apart, according to a Business Standard report, the Centre may take up with GST Council the issue of bringing natural gas under the Goods and Services Tax (GST) regime to begin with before the entire oil and gas sector is brought under it.

GST levy on natural gas would help state-run oil companies such as ONGC, IOCL, BPCL and HPCL to save tax burden to the tune of Rs 25,000 crore as they would get credit on taxes paid for inputs and services. Tax credits are not transferable between the two different taxation systems, the report suggested. CLICK HERE TO READ FULL REPORT