ICICI Securities is bullish on Oil and Natural Gas Corporation recommended buy rating on the stock with a target price of Rs 124 in its research report dated October 08, 2020.
ICICI Securities research report on Oil and Natural Gas Corporation
A committee has been set up to suggest changes to the prevailing price formula under which gas price fell to US$2/mmbtu in H2FY21. As per press reports, it may propose US$1/mmbtu discount to JKM spot LNG as the floor price. We are optimistic that a floor price would soon be introduced, at which ONGC would make money (its average production cost is US$3.7/mmbtu). Floor price may be US$4.2/mmbtu, which ONGC has asked for since FY17, or linked to JKM spot LNG. Reports also suggest GoI may gradually deregulate price of nomination acreage (APM) gas over not more than six years. This may be the roadmap for uniform market-determined price for all gas produced in India, which the oil minister has often talked of. GoI on 7th Oct’20 approved the procedure to be followed to ensure price of deregulated gas was truly market-determined.
We expect gains for ONGC in the near term from the imminent revision in gas price formula and in the medium term from gas price deregulation. Reiterate BUY.
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