Higher new well gas output seen as key positive for ONGC despite weak Q3

ONGC's Q3 was weighed down by lower crude realisations, but improved gas realisations, rising new well gas share and upcoming projects may bolster medium-term production

ONGC’s standalone Q3FY26 results were dragged down by low realisations, though the downstream subsidiaries, HPCL and MRPL, helped pull up the consolidated performance. Consolidated revenue was ₹167,400 crore, up 0.8 per cent Y-o-Y, and 6 per cent Q-o-Q. 

 

The operating profit was ₹25,300 crore, up 2.8 per cent Y-o-Y, down 4.5 per cent Q-o-Q.

 

Revenue for the domestic standalone business was ₹31,500 crore, down 6.4 per cent Y-o-Y and down 4.5 per cent Q-o-Q. The operating profit was ₹15,200 crore, down 10.9 per cent Y-o-Y and down 8.0 per cent Q-o-Q. The downturn was due to a fall in crude oil realisation.

 

Crude production was 5.12 million metric tonnes (mmt), down 2 per cent Y-o-Y and down 1 per cent Q-o-Q, with ONGC standalone production of 4.84 mmt, down 2 per cent Y-o-Y and down 1.0 per cent Q-o-Q. The ONGC’s Natural Gas production (along with JVs) was 55.35 million standard cubic metres per day (mmscmd), down 0.3 per cent Y-o-Y and up 1.2 per cent Q-o-Q, with standalone production of 54.22 mmscmd, up 0.2 per cent Y-o-Y and 1.4 per cent Q-o-Q.  

 

Crude oil realisations declined 15.1 per cent Y-o-Y to $61.6 per barrel vs Q3FY25 realisations of $72.6 per barrel, and Q2FY26 realisations of $67.3 per barrel, while gas realisations rose 1.4 per cent Y-o-Y to $6.6 per million metric British thermal unit (mmbtu) or slightly more.

 

Crude oil production decreased 2.2 per cent Y-o-Y, while gas production reduced 0.3 per cent Y-o-Y. For the 9MFY26, crude production declined 0.5 per cent, while gas output decreased by 0.6 per cent Y-o-Y. ONGC guided for capex of ₹33,000 crore (standalone) for FY26. It incurred a capex of ₹24,400 crore in 9MFY26. The net debt/equity stands at 0.3 times. The FY27 oil & gas production is guided at 42.5 million tonnes of oil equivalent (mtoe) (Oil: 21 mmt; Gas: 21.5 bcm) and FY28 will see production growth at better than FY27 rates. The company also targets ₹1,000 crore in cost reductions.

 

Obviously crude oil price movement is a key monitorable. Gas realisations may improve due to more new well gas (NWG), which is priced at 20 per cent over the administered pricing mechanism (APM). Investors are waiting for an increase in gas production growth. NWG may contribute 24 per cent of production within 3 years, up from 18 per cent currently.

 

The Daman and Discovered Small Fields (DSF II) projects may add gas production in FY27. Other key projects include KG 98/2, and Mumbai High, with BP’s involvement expected to enhance Mumbai High output from FY28. Near-term gas production growth of 7-9 mmscmd is possible if both Daman and DSF-II come through by FY27. Management says KG 98/2 may see ramp-up to 5-6 mmscmd by end of FY27 and Daman could have peak output of 4-5 mmscmd. Approximately, ₹77,000 crore is earmarked for projects for production augmentation.

 

The crude oil guidance for FY27 is 21.0 million tonnes (mnt) of oil and 21.5 bcm of gas, while actual crude oil production was 18.6 mnt and gas production was 19.7 bcm for FY25 and for 9MFY26, it is 15.6 mnt crude oil and 15.1 bcm gas.

 

Overseas, ONGC Videsh (OVL) says full-scale development of Mozambique will resume soon. ONGC has a 16 per cent stake in this gas asset. The first LNG production is expected in H12029. OVL’s revenue was reported at ₹1,840 crore, down 13 per cent Y-o-Y and down 19 per cent Q-o-Q, with operating profit at ₹673 crore, down 14 per cent Y-o-Y and down 37 per cent Y-o-Y and adjusted net profit amounted to a loss of ₹165 crore. OVL’s crude production was 1.7 mmt, down 5 per cent Y-o-Y and down 1 per cent Q-o-Q and its natural gas production was 0.69 bcm, down 11 per cent Y-o-Y and up 13 per cent Q-o-Q.

 

MRPL reported operating profit of ₹2,780 crore, up 170 per cent Y-o-Y and 87 per cent Q-o-Q with a gross refining margin (GRM) of $11.5 per barrel, up from Q2FY26 GRM of $8.6 per barrel and a throughput of 4.7 mmt. OPAL reported operating profit of ₹103 crore, versus an operating loss of ₹160 crore in Q3FY25. Production was 413.8 TMT. In 9MFY26, OPAL had an operating profit of ₹300 crore, vs a loss of ₹150 crore Y-o-Y. OPAL is operating at 90 per cent capacity utilisation.

 

ONGC has overseas exposure through OVL and OVL’s forex –denominated debt is about 37 per cent of gross debt, which carries a risk with a weaker rupee. Moderating GRMs could have a negative effect on OMC profitability, which in turn will affect consolidated results.