ONGC\u2019s Q1FY17 PAT came in at Rs 42 billion (down 21% y-o-y, flat q-o-q), 25% ahead of estimate on account of lower expenditure. Production decline continued with oil production missing our estimate, while gas came slightly ahead. Management guided gas production to improve as new projects are commissioned. Furthermore, current trend of low opex will continue as new contract and rig rates are down. Lower domestic gas price in H2FY17 will cap benefits of oil recovery. However, higher oil and gas prices portend brighter prospects from FY18. The CMP is discounting undemanding $45\/bbl long-term oil. Maintain buy with target price of Rs 288. Crude production from ONGC\u2019s nominated blocks, at 5.16MMT, fell 1% y-o-y and q-o-q (vs estimate of 5.5MMT). Gas production, at 5.17bcm, dipped 6% y-o-y but rose 5% q-o-q (versus estimate of 5bcm). Net realisation of $46\/bbl fell 22% y-o-y, but rose 32% q-o-q on 30% recovery in oil price. The company did not bear subsidy during the quarter. Management guided for FY17 crude production at 25.7MMT and gas at 23.8bcm. New projects like Daman and Vasai East and other redevelopment projects like Mumbai High will augment gas production from Q3 However, oil production will likely remain flat.