Categories Analysis, Energy, Research Summary

A Primer on Oil and Natural Gas Corporation

“To counter the decline in production from some of the matured and marginal fields, ONGC is taking proactive steps by implementing well interventions and advancing new well drilling activities. The current decline in production is temporary. The same will be compensated in upcoming quarters with commencement of additional production from new projects; especially by crude oil production commencement from KG 98/2 in Q3 2023-24.”

Management Commentary – Q1FY23 Press release

Stock data

ExchangeBSE and NSE
IndustryOil Drilling and Exploration
Price Performance:
Last 5 days-1.69%
Last 1 year+28.68%

Company description:

Established in 1956 by the Government of India for oil exploration, ONGC is the largest crude oil and natural gas Company in India, contributing around 71 per cent to Indian domestic production. With 60+ years of oil exploration, ONGC has discovered 8 out of 9 producing basins of India: 1958 at Gujarat, 1963 at Assam, 1967 at Rajasthan, 1974 at Mumbai, 1980 at Krishna Godavari, 1985 at Cauvery, 2019 at Bengal & 2022 at Vindhyan.

Largest Energy Company of India:

Maharatna ONGC is the largest crude oil and natural gas company in India, contributing ~71 percent to Indian domestic production, and is also the most profitable PSU in India.

ONGC Group companies:

  1. ONGC Videsh: Responsible for international operations
  2. HPCL (Hindustan Petroleum Corporation Limited): India’s second-largest oil marketing company with 18,600 outlets
  3. MRPL (Mangalore Refinery and Petrochemicals Limited)
  4. PMHBL (Petronet MHB Limited): Involved in transportation of petroproducts from MRPL refinery to various parts of Karnataka.

Joint ventures:

  1. OPaL (ONGC Petro-additions limited): One of the largest dual-feed petrochemicals complex in South Asia
  2. OTPC (ONGC Tripura Power Company ltd): is natural has based gas turbine thermal power plant
  3. OTBL (ONGC TERI Biotech Ltd): Promotes and develops technologies for bioremediation of soil and enhanced oil recovery
  4. IGGL ( Indradhanush Gas Grid Ltd): Extends gas network in country’s North-East region with 1656 Km long north east Gas Grid
  5. MSEZ (Mangalore Special Economic Zone): Facilitates infrastructure and locates industrial establishments & Dahej SEZ Ltd.

Production data:

For FY22, total oil & gas production including JV stands at 43.387 MMTOE (Million Metric Tonnes of Equivalent Oil) which includes 21.707 MMT (million metric tonnes) and 21.680 BCM (Billion Cubic Metres) of Oil & Gas respectively. It also includes 3089 KT (Kilo Tonnes) of the value of added products.

Drilling Wells operations:

ONGC drilled 434 wells during FY22 against 480 wells drilled in FY21. Out of the 434 wells drilled 78 were exploratory wells and 356 were development wells including side-track wells. The company also managed to complete two ultra-deepwater wells.

International Operations:

ONGC Videsh is a wholly-owned subsidiary and takes care of international exploration & production operations. The company is involved in 37 oil & gas projects outside India in 17 countries Azerbaijan (2 projects), Bangladesh (2 Projects), Brazil (2 projects), Colombia (7 projects), Iran (1 project), Iraq (1 project), Israel (1 project), Kazakhstan (1 project), Libya (1 project), Mozambique (1 Project), Myanmar (6 projects), Russia (3 projects), South Sudan (2 projects), Syria (2 projects), United Arab Emirates (1 project), Venezuela (2 projects) and Vietnam (2 projects).

Capital Expenditure:

From FY21-22, average capital expenditure was ~INR 2,77,412.6 Mn.

Stake in Indian Gas Exchange:

Company owns a 5% stake in the India Gas Exchange – the first gas exchange in India which provides an automated platform for trading natural gas.

Future Exploration strategy:

The company intends to spend INR 31,000 Crs in the next three fiscals (FY22-25) for Oil & Gas exploration. Co. plans to sell its stake to International oil firms and develop oil fields in collaboration with International players.


What we like:  

  1. Production to see meaningful increase: 

Q1FY24 oil production stood at 5.3 Mt which was down by 3% YoY but up by 1% QoQ, whereas gas production stood at 5.2  bcm, which was down by 3% and 1% on YoY and QoQ, respectively. ONGC’s standalone production of oil & gas (including JV share) has steadily declined over the past 5 years. With the start of production from the Krishna Godavari basin and new assets, we believe this anomaly may get redressed over the next few years. We are, therefore, optimistic on production prospects, and we factor in a CAGR of ~4.6% in oil and gas output (standalone) over FY23-FY25E. We have cut our gas production estimates by 2% and 0.5% for FY24 and FY25E vs earlier to factor in some delay in starting of KG basin production. 

  1. Stable Demand for Energy:

: ONGC operates in the oil and gas sector, which is a critical component of the global energy mix. As long as industries and economies rely on energy, there will be consistent demand for oil and gas. This demand stability ensures that ONGC maintains a reliable revenue stream.

  1. Vertical Integration:

ONGC’s involvement in various stages of the oil and gas value chain gives it a competitive edge. It has exploration and production operations, and also participates in refining and distribution through its subsidiary, Hindustan Petroleum Corporation Limited (HPCL). This vertical integration allows ONGC to capture value at multiple stages, which can provide stability during volatile market conditions.

  1. Control over Domestic Reserves:

ONGC holds significant oil and gas reserves within India. These domestic reserves act as a reliable source of production, reducing the company’s dependence on imported resources. This can lead to greater revenue certainty and potentially lower production costs.

Factors to consider:

  1. ONGC operates in a competitive industry with both domestic and international players. Intense competition can impact the company’s ability to secure attractive projects and maintain favorable pricing.
  2. ONGC’s financial performance is heavily tied to global oil and gas prices, which can be extremely volatile. Fluctuations in these commodity prices directly impact the company’s revenue and profitability. Sudden drops in prices, as witnessed during the oil price crash in 2020, can adversely affect ONGC’s bottom line.
  3. ONGC’s international operations expose it to geopolitical risks, including political instability, conflicts, and changes in government policies. These risks can disrupt operations, impact production, and affect profitability.

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