State-owned oil producers may report higher production in coming quarters: Analysts

State-owned Oil and Natural Gas Corporation reported a 2.1 percent decline in crude oil production in the second quarter at 5.2 MMT

State-owned Oil and Natural Gas Corporation Ltd (ONGC) is expected to witness production growth in the coming quarters post commencement of production from its Krishna Godavari basin in the Bay of Bengal, said analysts.

In the second quarter of FY24, the oil producer reported a 2.1 percent decline in crude oil production at 5.2 million metric tonne (MMT) and a 2.8 percent reduction in natural gas production.

“On the production front, the decline in oil and gas production is likely to be compensated post commissioning of production from the KG basin in the coming quarters. We build in a volume CAGR (compound annual growth rate) of 4 percent and 6 percent for oil and gas over FY23-26E to reach 23.9 MMT of oil and 25.4 billion cubic metre (BCM) of gas in FY26E,” said Prabhudas Lilladher in a report.

The much awaited production commencement from ONGC’s deepsea project in the KG basin is expected to begin in 2023. Production from the project is expected to arrest the company’s production decline. The total oil production from the block is expected to be around 23 MMT and total gas production is likely to be 50 BCM.

Growing demand

India is dependent on imports of crude oil for over 85 percent of its requirement while the country gets around 50 percent of its natural gas from other countries. To reduce dependency on imports, the central government has been pushing for boosting domestic production.

However, the country seems to be highly dependent on imports considering rising domestic demand and companies’ production trends. According to S&P Global Commodity Insights, India's oil product demand increased sequentially by 80,000 barrels per day (bpd) in October. On a year-on-year basis, total demand was up by 197,000 bpd, or 4 percent, as strong economic fundamentals continue.

ONGC’s consolidated net profit surged 142.4 percent to Rs 16,553 crore in the quarter ended September 30, 2023, from Rs 6,830 crore in the same period last year. Revenue from operations, however, fell 12.9 percent to Rs 1.46 lakh crore in Q2, compared to Rs 1.68 lakh crore last year.

JM Financial said in a report, “ONGC’s 2QFY24 standalone EBITDA was 6.7 percent below JMFe at Rs 18,400 crore (though only marginally below consensus of Rs 18,600 crore) due to slightly lower crude sales volume, a little lower-than-expected oil & gas realisation and higher cess (at Rs 3,660 crore versus JMFe of Rs 3,390 crore).”

Oil India Ltd

Meanwhile, state-run Oil India Ltd (OIL) registered growth of almost 6 percent in crude oil production at 0.835 MMT during the quarter. Brokerage Emkay Global said in a report that the company eyes production at a CAGR of 4-5 percent for the next two to three years.

“Crude production was in line at 0.83mmt (up 6 percent YoY), while gas was 3 percent at 0.81bcm (down 2 percent YoY). NRL’s operations resumed post the shutdown; with more than 100 percent utilisation and basic GRM up to $16.0/bbl in Q2, earnings recovered to Rs 740 crore. The management cited crude production target at 3.5-3.6mmtpa for FY24, while gas could see 2-3 percent YoY growth,” said Emkay post Oil India results.

In Q2, Oil India reported a decline of 70 percent in consolidated net profit year-on-year at Rs 640 crore, as against Rs 2,116 crore in the same quarter last year. Revenue from operations came in at Rs 8,816 crore in the reporting quarter, a fall of 13 percent from Rs 10,121 crore last year.