ONGC shares as investors book profits after sharp gains

ONGC's shares had risen nearly 6 percent in the last two trading days after the government unveiled a new pricing mechanism for domestically produced natural gas.

Shares of Oil and Natural Gas Corporation Ltd (ONGC) closed lower on April 12, as investors resorted to profit booking after the stock surged nearly 6 percent in the previous two sessions.

ONGC surged in the last two days after the government accepted key recommendations of the Kirit Parikh panel with respect to the pricing of natural gas produced from the administered price mechanism (APM) fields, which are held by public sector undertaking companies.

The APM gas structure is likely to benefit companies such as ONGC as it will have a floor price of $4 and a ceiling of $6.5. For the state-run ONGC, the floor price is higher than the cost of production, a report by Motilal Oswal Financial Services said.

The new mechanism also guarantees a 20 percent premium for the production of gas from new wells or interventions from existing wells. This is likely to be profitable for companies such as ONGC and Oil India Ltd.

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Additionally, ONGC had announced that it was preparing to bet billions of dollars on deepwater and ultra-deepwater exploration even as the state-run company's oil and gas production continues to decline.

The company plans to bid aggressively in upcoming government auctions to increase its exploration acreage to 500,000 square kilometers by March 2026 from the current 163,000 square kilometers. Annual spending will rise to 110 billion rupees from an annual 70 billion to 80 billion rupees.

ONGC's oil production has declined to 16.88 million tonnes during April-February period of the fiscal year 2022-23 from 20.80 million tonnes in the fiscal year 2018.

The ONGC stock has been in the red in the past year, falling nearly 7 percent on the BSE but has given a return of 104 percent in the last three years.

On April 12, the stock closed almost a percent lower at Rs 157.70 on the BSE.

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