ONGC: Gas output may clock 6% CAGR over FY20-23

ONGC reported in-line sales volumes, with realisation at $43.2/bbl. Crude oil production has reached last year’s levels, while gas is still marginally lower YoY due to lower offtake by customers on account of Covid-19. For FY21/FY22, the company has guided for oil production at ~22.5mmt/23mmt (flat YoY), while gas production is set to increase to ~23bcm/25bcm (+8% YoY), although lower than earlier estimates. Covid has caused further delay in KG-DWN-98/2, with the peak production target to be achieved over 2023-24.

Production is likely to rise to 2.5- 3mmscmd by May’21 (which currently produces ~0.3mmscmd), reaching ~3.5mmscmd/8.5mmscmd in FY22/FY23. Our oil production assumption remains unchanged, while we lower our gas assumptions to ~25bcm/28bcm for FY22/FY23 (from ~27bcm/31bcm). We believe oil prices would not sustain above $60/bbl in the near term as OPEC+ production quotas are normalised (from -8.2mnbopd). IEA, in its Feb’21 OMR, expects 1QCY21 oil demand to fall ~1mnbopd from 4QCY20. We further expect APM price revision of 25-30% from 1st Apr’21 on current gas price of $1.79/mmbtu.