ONGC: Sea of Opportunity

twitter-logo Manu Kaushik        Print Edition: August 21, 2011

Most upstream oil companies would be delighted by sustained high global crude oil prices. Not energy giant Oil and Natural Gas Corp., or ONGC, which accounts for 68 per cent of India's oil and gas production. High crude prices hurt ONGC by escalating exploration costs and increasing the subsidy burden, which in turn tell on the stock price. But A.K. Hazarika, ONGC's Chairman and Managing Director, says fresh discoveries, monetisation of unused assets, and a strong overseas performance will help the company grow.

ONGC's market capitalisation of Rs 2.36 trillion is the highest among all listed PSUs

At 47.5 million metric tonnes of oil equivalent, ONGC's oil and gas production is the highest in the country

Due to a higher subsidy burden, ONGC's net crude price realisation was $53.77 per barrel in 2010/11, a discount of $31.32 on the actual sale price

Out of the seven producing basins discovered in India so far, ONGC has found six
Its crude production target has been raised from 125 million tonnes in the 11th Five-Year Plan to 130 million in the 12th Plan. "We're trying to monetise offshore fields that were unviable earlier," says Hazarika. "Because of high gas prices and better price realisation, we can begin production there now." Production in these fields will start in 2013, and generate about five million tonnes, or 19 per cent of ONGC's total oil output.

ONGC's reserve replacement ratio or RRR has exceeded one for six consecutive years. RRR measures the new reserves added in a year against the amount extracted. An RRR greater than one suggests production will increase. In 2010/11, it was 1.76. ONGC owns 56 deepwater blocks, allocated to it under the New Exploration Licensing Policy regimes between 1997 and October 2010. Analysts say there is huge potential for discoveries there. "ONGC had initial success in the KG block," according to Harshad Borawake, analyst at Motilal Oswal Securities, which has a buy recommendation on ONGC.

"Significant discoveries in the Cambay and Mahanadi fields could boost valuations." The time from discovery to production is longer for deepwater assets than for onshore and shallow-water ones. "By 2016/17, we aim to convert some deepwater discoveries to production," says Hazarika.

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