ONGC hits over 7-year high, up 3% on winning seven oil exploration areas

Shares of Oil & Natural Gas Corporation (ONGC) hit an over seven-year high of Rs 213.55, gaining 3 per cent on the BSE in Thursday's intraday trade, after the state-owned company won seven of the 10 areas for exploration of oil and gas.

The stock price of ONGC surpassed its previous high of Rs 212.90, touched in January 2018. Currently, it is trading at its highest level since December 2016. The stock had hit a record high of Rs 314.57 on January 9, 2014, data shows.

Meanwhile, in the past six months, ONGC has outperformed the market by surging 32 per cent as compared to 10 per cent rise in the S&P BSE Sensex.

The Centre, recently, opened the ninth round of bidding under the Open Acreage Licensing Policy (OALP IX) for the oil and gas exploration and production (E&P) sector.

In the ninth round of bidding, 28 blocks with an area of approximately 136,000 square km, are on offer for bidding. Out of these, 23 blocks are based on Expressions of Interest (EoIs) received from companies from April 2022 to March 2023, while five were carved out by the Directorate General of Hydrocarbons (DGH).

The government has been hoping that opening up more acreage for exploration will help boost India's oil and gas production, helping cut down the $222 billion oil import bill, according to reports.

ONGC is India's largest domestic crude oil and natural gas producer with proven reserves of 806.9 million metric tonnes of oil equivalent (mmtoe) as of March 2023. ONGC and ONGC Videsh (OVL) aid the government of India's objective of ensuring energy security. OVL acts as India's upstream producer in international markets and helps in maintaining diplomatic and strategic ties with different countries.

ONGC is highly dependent on offshore assets, with Mumbai High Field and Bassein Gas Field assets contributing a bulk to the oil and gas production, respectively. Furthermore, the company is likely to see a healthy accretion of both oil and gas production from the KG-Basin, which has total reserves of around 65.69 million metric tonnes of oil equivalent (mmtoe), according to India Ratings and Research (Ind-Ra)

ONGC, on a standalone basis, has a long-term repayment of Rs 3,270 crore in FY24 and nil in FY25. If crude and gas prices continue to be strong, Ind-Ra believes ONGC will be able to de-leverage faster than the scheduled pay-outs over the short term. Ind-Ra believes the debt maturities, on a consolidated basis, can be managed by the company, given the strong cash flows.

ONGC targets to increase production by 1 per cent/5 per cent in FY24/25. The key wells to be targeted for exploration in H2FY24 will be Mahanandi Basin, Western Offshore, Assam Basin, and Bengal Basin.

The company will also be infusing additional Rs 18,300 crore in ONGC Petro additions (OPAL). It intends to approach the government seeking permission to utilize gas from new wells and well interventions in OPAL. Management expects OPAL to turn profitable from FY25, analysts at Motilal Oswal Financial Services said.