Though gas production may record significant growth over the next 3-4 years, analysts at Motilal Oswal Securities have, for now, revised their gas production estimates, factoring in the delays.
They have lowered projections by 8-14 per cent for FY21 and FY22, to 24.7 bcm (billion cubic meters) and 30.2 bcm, respectively.
Further, ONGC’s gas realisation had come in at $2.4 per mmbtu (million British Thermal units) — down 28 per cent sequentially in the June quarter — on account of the sharp 26 per cent cut in domestic gas prices
from April 1, 2020.
Domestic gas prices
are likely to fall further; Nomura pegs it at $1.9-2.0 per mmbtu from October 1, 2020.
The story is no different for Oil India.
For the June quarter, its crude oil realisation fell 42 per cent sequentially and 54 per cent year-on-year (YoY) to $29.3 a barrel, whereas gas realisation fell 26 per cent sequentially and 35 per cent YoY to $2.3 per mmbtu, at the stand-alone level.
Lack of production growth in both oil and gas is a key reason for analysts remaining cautious on Oil India.
Consequently, earnings for both ONGC and Oil India hinge on an uptick in crude oil prices, which otherwise are expected to be under pressure during FY21.
Given the weak global macros, analysts at HDFC Securities have estimated oil prices at $36 in FY21, and $41 in FY22, against $63 a barrel in FY20. As a result, they have reduced their ratings for both stocks. Even Nomura remains cautious on the ONGC stock.