ONGC - Output from offshore fields to drop by 4.13%

The state-owned Oil and Natural Gas Corporation (ONGC) has submitted its revised crude oil and natural gas production estimates for FY12 and FY13 to the Oil ministry. The Maharatna company expects the production of crude oil and natural gas to fall for the current fiscal, but for 2012-13, it expects the output to come back on track.

For 2011-12, ONGC has revised the crude oil production target downwards from its budget estimate of 24.77 MT to 23.91 MT. This is lower than the 24.42 MT output in 2010-11. The output from offshore fields would fall 4.19% to 16.70 MT, while onshore output stands up better in comparison at just 1.78% off the target of 7.34 MT to 7.21 MT.

In the case of crude oil, however, the company has projected output at 25.05 MT in 2012-13, up 4.7% from the revised estimate of 23.91 MT for the current fiscal. Its total offshore crude oil production is estimated to go up by nearly 7% to 17.87 MT, while that from onshore fields would dip marginally to 7.18 MT from the figure of 7.21 MT estimated for 2011-12. After accounting for output from JV fields like the prolific Rajasthan block operated by Cairn India, ONGC’s total oil production would be 27.27 MT in 2011-12. In 2012-13, ONGC is projecting a total output of 28.77 MT, up 5.48% from the current year's estimate.

In case of natural gas, production (excluding that of JVs) has been revised downwards from a budget estimate of 23.54 bcm to 23.19 bcm in 2011-12. This compares to the gas production of 23.10 bcm in 2010-11. Offshore output is expected to fall short of the target by 2.54%, from 18.15 bcm to 117.69 bcm. If JVs are included, the downward revision is lesser, at 0.84%, from an overall budget estimate of 25.45 bcm to 25.24 bcm. For 2012-13 though, ONGC is projecting an output of 24.88 bcm, with offshore gas production going up 10.21% to 19.5 bcm. After including JVs, the gas output has been put at 27.02 bcm.

In conclusion, despite the marginal scale down in production estimates for 2011-12, we believe that following the sharp spike witnessed in international crude oil prices, ONGC is expected to post a robust topline performance for FY12E. However, the estimated Rs 121000 gross under-recoveries to be reported by OMCs for this fiscal will have to be compensated by ONCG with a subsidy of around Rs 32000, which will seriously eat into the company’s bottomline.