By Manish Gupta
Growth in production volumes will outstrip the impact of moderating oil prices on Oil & Natural Gas Corporation’s (ONGC) earnings in the current fiscal, S&P Global Ratings said in a statement on Friday.
“We estimate the company’s Ebitda at `1 trillion-1.1 trillion over fiscals 2024 and 2025, compared with about `987 billion in fiscal 2023,” the rating agency said about India’s largest oil & gas producer.
ONGC’s operating cash flows will rise over the next 12-24 months thanks to higher production volumes, stable earnings from domestic gas production and the removal of a windfall tax on crude oil, it said.
“We estimate that ONGC’s domestic production volumes will rise by 8-10% for fiscal 2024. The increase is attributable to the start of oil production from its block in the Krishna Godavari basin later this year. At the same time, production at the Sakhalin-1 project of ONGC Videsh (OVL) should also recover to fiscal 2022 levels, after a period of disruptions because of geopolitical issues,” S&P said.
ONGC produced a total of 42.8 million metric tonne of oil equivalent (mmtoe) in fiscal 2023 compared with 43.4 mmtoe in fiscal 2022. OVL produced a total of 10.2 mmtoe in fiscal 2023, down from 12.3 mmtoe in fiscal 2022.
S&P Global Ratings forecasts that the Brent crude oil price will be $90 per barrel for the rest of 2023 and $85 per barrel for 2024 and 2025.
In its view, the average realisation on domestic gas production will be $6.5 per metric million British thermal unit (mmbtu) in FY24, compared with $7.5 per mmbtu in FY23. The realisation rate is in line with India’s new gas price formula, calculated at 10% of the average price of the crude basket in the preceding month, but capped at $6.5 per mmbtu.
“We expect ONGC to continue to direct 55%-60% of its operating cash flows for capital investments over the next 12-24 months. In fiscal 2024, it will spend about `32,000 crore at the stand-alone level and about `14,000 crore at its subsidiary, Hindustan Petroleum Corp,” it said, adding that it estimates ONGC to invest about `47,500 crore in total over the year.
Investments on exploration and production in existing onshore and offshore fields are critical for ONGC because production volumes have declined consistently since fiscal 2020, it added.
The state-run company has a sufficient cushion to undertake additional investments and maintain healthy shareholder distributions, said the rating agency. It will step up its investments in renewables and diversify its petrochemicals business starting fiscal 2025.
ONGC plans to spend `1 trillion to achieve its 10-gigawatt in green energy goal by 2030. Currently, it has renewable energy capacity of 340 MW, and it has committed to net zero for scope 1 and 2 emissions by 2038.