Accumulate ONGC; target of Rs 283: PLilladher

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26 Aug, 2025 12:21

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Prabhudas Lilladher is bullish on Oil and Natural Gas Corporation (ONGC) and has recommended accumulate rating on the stock with a target of Rs 283 in its November 27, 2012 research report.
 
“ONGC Videsh Ltd. (OVL) is set to acquire Conoco Phillips’ 8.4% stake in the Kashagan oil field project for US$5bn. Kashagan oil field is located in the Kazakh sector of the Caspian Sea. The deal is subject to various government approvals, Kazakhstan’s as well as co-ventures’ pre-emption rights. The transaction is expected to close in the first half of 2013.”
 
“Oil in place stands at ~38bn barrels. Owing to the reservoir's complexity, the recovery factor is relatively low, about 15-25%. ENI’s website states the recoverable reserves at 7-9bn bbls. The first oil is expected from the field in H1FY13 and initial estimates peg production at 370-450 kbpd. Peak output is expected at ~1.5mbpd towards the end of 2020. The field has seen significant cost overruns on account of repeated delays and a tough drilling environment. Reports suggest that costs have ballooned to 3.3x the initial estimates of US$57bn to US$187bn. Offshore location, severe winter weather, shifting blocks of ice and government delays are some of the rationales for the significant delay in project cost escalation. Gross capex in Phase-1 till June 2012 stood at US$41bn. According to our estimates, OVL has paid ~US$7.8 per barrel, which looks reasonable, broadly in line with carrying value of COP in Conoco’s books. However, the value accretion potential of the deal hinges upon the cost recovery aspect and fiscal terms, given the significant cost overruns.”
 
“Moreover, the Phase-II development of the field is also stalled due to conflict on cost issues with the Kazakh government. The acquisition is a part of OVL’s strategy to increase its production to 20MMTPA by 2020 from FY12 levels of 8.8MMTPA. ONGC, with cash of ~US$4bn in its book at the end of September 2012, would be able to fund the deal but will now become a net debt company,” says Prabhudas Lilladher research report.

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