Broker’s call: ONGC (Buy)

Target: ₹375

CMP: ₹246.40

We hosted AK Singh – Chairman and Vivek Tongaonkar – CFO in the US. ONGC has contracted BP as Technical Service Provider on its field contributing 32/20 per cent of its crude/gas production. Over the 10-year period of the contract, BP expects to increase crude oil/gas recovery by 44/90 per cent over ONGC’s assumed recovery estimates. This should result in about 5 per cent annual increase in crude and around 8 per cent annual increase in gas production from the field FY27 onwards if BP succeeds. This could take ONGC’s production growth CAGR to 10 per cent+ over FY27-30. We have not built this into our estimates.

Mumbai High is geologically similar to Iraq’s largest oil field – Rumaila. Forty years into Rumaila’s production, BP was inducted into a technical services contract in 2009. Over the next 8 years, production from the field rose ~40 per cent from 1.06 mbpd to 1.47 mbpd despite a 17 per cent natural decline rate.

We build in 2/9 per cent CAGR in crude/gas production but Mumbai High production growth poses upside risk to our est. We project 14 per cent EPS CAGR over FY25-27 on production growth and better pricing in gas. The stock is discounting $55 crude, making R-R favourable. Maintain Buy with PT of ₹375.