Jefferies has reaffirmed its bullish stance on ONGC, assigning a Buy rating with an ambitious target price of Rs 375 per share. This projection suggests a substantial 52% upside from current trading levels. Analysts at Jefferies believe that recent reforms in gas and crude pricing will significantly enhance shareholder returns, supporting an impressive 14% compounded earnings growth from FY25 to FY27.

Promising Production Growth Expected

ONGC is optimistic about achieving a 10-12% compounded growth in production between FY26 and FY30, primarily driven by the development of the Mumbai High field. Jefferies pointed out the positive effects of BP’s recent achievements in the Rumaila oil field, which saw a 40% production increase in a similar geological setting. This success serves as a strong indicator for ONGC’s future potential.

Strategic Initiatives for Increased Output

ONGC aims for a steady 5-6% annual production growth from FY26 to FY28, capitalizing on enhanced crude and gas output from the KG basin slated for mid-2025. With BP on board as a Technical Service Provider, projections indicate a potential 44% increase in crude oil recovery and an impressive 90% boost in gas recovery over a decade. If BP meets these targets, ONGC could witness a 5% annual increase in crude and an 8% rise in gas production starting from FY27.

BP’s Success Bolstering Confidence

Jefferies also expressed optimism regarding ONGC’s prospects, citing the geological similarities between Mumbai High and Iraq’s Rumaila field. BP’s involvement in Rumaila has led to significant production gains, with recovery rates expected to reach 50%, compared to ONGC’s current forecast of 30% for Mumbai High. This could pave the way for ONGC to pursue similar contracts, enhancing its operational efficiencies.

Positive Market Dynamics for Gas Pricing

Looking ahead, ONGC anticipates that 20% of its gas production will qualify for the new well gas price of US$ 8.5/mmbtu by FY26, increasing to 100% by 2030. Jefferies views this as a significant advantage, noting that the base field gas price is projected to increase by $0.25/mmbtu annually from FY26 onwards.

Insights on Crude Business Stability

In its report, Jefferies highlighted that ONGC does not foresee the windfall tax on crude falling below $100/bbl. This stability is crucial for attracting global companies to explore new fields, as outlined in the recently passed Oilfields Amendments Bill, which aims to provide a favorable investment climate beyond the previous $75/bbl cap.

Strategic Acquisitions to Drive Growth

Furthermore, ONGC’s recent acquisition of Ayana aligns with its strategy of developing mature assets, ensuring access to land, grid connections, and power purchase agreements (PPAs). The company is focusing on expanding its portfolio in solar energy, targeting a 14% Equity IRR on these projects, which stands as a critical factor in its growth trajectory.

By leveraging these strategic initiatives and favorable market conditions, ONGC is poised for robust growth in the coming years. For more insights on market trends and investment strategies, feel free to explore our related articles.