Oil producers: Not a bad show

Over the past one year, the ONGC stock has been an outperformer falling 34 per cent compared with a 50 per cent fall in the Sensex. Another oil producer, Cairn India, too has done better than the benchmark and though crude oil prices have come off sharply, analysts believe there could be some upside for both stocks, over the next year or so.

ONGC, they believe could touch Rs 850, an appreciation of 30 per cent from current levels. The recent discoveries in Rajasthan, they say, could see Cairn move up by as much as 45 per cent from the current levels of Rs 159.

Although crude oil prices have been falling — from $123 per barrel to around $45 per barrel currently — analysts may have put out a higher target price for ONGC, had there been greater clarity on exactly how much it needed to set aside to help oil retailers, who sell products at lower than their cost price.

At over Rs 27,000 crore, so far this year, ONGC has already paid out more than it did in 2007-08. Realisations in the December 2008 quarter at $34 per barrel, were way below the $58 per barrel that it averaged in the first half of 2008-09.

CLSA believes that post subsidy net realisations could be around $47 per barrel for 2008-09 and could increase to $52 per barrel next year. The somewhat expensive acquisition of Imperial and the execution delays at some of the sites within the country, appear to be factored into the price.

Cairn India is perhaps more of a volume play because of the additional capacity coming up in the next few years — in Barmer ( Rajasthan) alone, a capacity of 205 kilo barrels per day is being created.

By end 2009, the company should be producing around 80 kilo barrels per day with periodic ramp-ups taking place and the full impact of the higher volumes will be seen in 2010. Last year, Cairn’s revenues rose 24 per cent to Rs 1,251 crore and it posted a net profit of Rs 785 crore.