Oil India surges 19%; ONGC hits nearly 6-year high on heavy volumes

ONGC surged 6 per cent to Rs 212, its highest level since January 2018. Oil India, meanwhile, hit a new high of Rs 406 and has zoomed 26 per cent in the past two days

Shares of state-owned upstream oil companies, Oil India, and Oil and Natural Gas Corporation (ONGC), surged up to 19 per cent on the BSE in Wednesday's intraday trade on the back of heavy volumes, extending their previous day's gain after the government on Monday cut the windfall profit tax on crude oil produced in the country and on exports of diesel.

Individually, Oil India zoomed 19 per cent to hit a new high of Rs 406 on the BSE on the back of over five-fold jump in average trading volumes. As many as 22.85 million equity shares of the company have cumulatively changed hands on the NSE and BSE. In the past two trading days, the stock price of Oil India has rallied 26 per cent.

Shares of ONGC, meanwhile, hit a nearly 6-year high of Rs 212 as they surged 6 per cent on the BSE. The stock was quoting at its highest level since January 2018. The average trading volumes on the counter more than doubled today with a combined 24.74 million equity shares of ONGC changing hands on the NSE and BSE.

According to a PTI report, the tax levied in the form of Special Additional Excise Duty, or SAED, on domestically produced crude oil has been reduced to Rs 1,300 from Rs 5,000 per tonne. The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks.

Meanwhile, according to Motilal Oswal Financial Services, ONGC and Oil India remain confident of 20 per cent higher slope (i.e., 10 per cent + 2 per cent) for gas prices applicable on production increase obtained via Improved Oil Recovery (IOR) and Enhanced Oil Recovery (EOR) techniques. The brokerage firm said it assumes flat gas price realisations for now.

ONGC has reiterated its commitment to raise production to 50mmtoe by FY28; while Oil India expects IndraDhanush Gas connectivity (by March 2024) to lead to gas production growth in high-teens in FY26 on YoY basis.

"The final quarter of each financial year tends to be the strongest for Oil India, and it anticipates that Q4FY24 will follow this trend. Oil India is actively pursuing development projects slated for completion in Q3, which should increase production significantly in Q4. The initial half of the year typically experiences lower production due to the 5-6 months of monsoon in Assam. Despite this, the company has already attained a 5.7 per cent year-on-year (YoY) increase in oil production in H1FY24, with an expected 6 per cent YoY increase for FY24," the brokerage firm said in a oil & gas sector update.

Oil India's management has put in place ambitious plans to boost oil production to annualised levels of 4mt by FY25-FY26 (from ~3.18 mmt in FY23 and estimated 3.4-3.5 mmt in FY24E) and gas output to even higher levels of 5 bcm (FY23: 3.18bcm; FY14E 3.5bcm). Oil India aims to accomplish these targets by focusing on high-impact areas and Open Acreage Licensing Program (OALP) field development.

"Guidance of 3.5 mmt (oil) and ~3.6 bcm (gas) for FY24 and 4-5 per cent growth in FY25E remains intact and we see earnings growing steadily, helped by strong Numaligarh Refinery Limited (NRL) earnings as well," analysts at ICICI Securities said.

Analysts at Prabhudas Lilladher, on the other hand, have a 'buy' rating on ONGC with a target price of Rs 237 per share. The brokerage firm said ONGC's total volume is expected to increase with commencement of rest of production from KG Basin and they have estimated a 4 per cent CAGR and 6 per cent CAGR in oil and gas production, respectively over FY23-FY26E.