ONGC targets offshore production growth as firmer crude outlook supports earnings and dividend yield
Oil & Natural Gas Corporation Ltd.
BUY
₹235
₹226
₹288
22.55%
Investment View and BUY Upgrade
Motilal Oswal Financial Services upgraded ONGC to BUY in its July 3, 2026 update, describing the company as an energy-security play with improving production volumes and a solid dividend yield. The upgrade is based on inexpensive valuation, a modest recovery in volume growth and greater operating freedom amid the Government's multi-year focus on strengthening domestic upstream oil and gas production.
The broker expects ONGC to benefit from faster monetisation of discoveries, renewed exploration activity and high crude prices. It derives a sum-of-the-parts target price of Rs 288 by valuing ONGC's standalone business at 6.5 times December 2027 EPS, listed investments at a 25 per cent discount to CMP, and the ONGC Videsh stake at 0.5 times FY25 book value per share.
Crude Price Outlook and Earnings Estimates
Motilal Oswal raised its Brent assumptions to USD84.2 per barrel for FY27 and USD75 per barrel for FY28, from USD75 and USD65 previously. The broker expects crude prices to remain supported because OECD commercial crude and liquid-product inventories may not normalise through CY26 and the first half of CY27. It also expects inventory replenishment, strategic-reserve requirements and any residual supply disruption to keep the oil market relatively tight.
| Brent assumptions | Earlier assumption | Revised assumption |
|---|---|---|
| FY27 | USD75 per barrel | USD84.2 per barrel |
| FY28 | USD65 per barrel | USD75 per barrel |
The revised commodity-price assumptions increase Motilal Oswal's FY27 and FY28 consolidated PAT estimates for ONGC by 9 per cent and 18 per cent, respectively. For standalone operations, the higher Brent assumptions and improved New Well gas realisations lift FY27 and FY28 EBITDAX estimates by 13 per cent and 15 per cent, and PAT estimates by 16 per cent and 22 per cent, respectively.
Production Growth Outlook
The broker forecasts overall production volume CAGR of about 2.6 per cent over FY26-FY28, comprising oil production CAGR of 1.6 per cent and gas production CAGR of 3.7 per cent. It estimates domestic oil and gas output of 21.2 million metric tonnes and 21.5 billion cubic metres, respectively, by FY28.
| Production metric | FY26-FY28 outlook |
|---|---|
| Overall production volume CAGR | About 2.6 per cent |
| Oil production CAGR | 1.6 per cent |
| Gas production CAGR | 3.7 per cent |
| Domestic oil output by FY28 | 21.2 million metric tonnes |
| Domestic gas output by FY28 | 21.5 billion cubic metres |
Management has guided for production CAGR of more than 5 per cent over the same period, led by gas ramp-up from Daman and KG-98/2. ONGC plans to drill more than 500 wells annually, including more than 100 exploratory wells, supporting reserve replenishment and production growth.
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Key Production Projects
Daman Upside Development Project
The Daman Upside Development Project has commenced operations. All wells are targeted for commissioning by September 2026. Motilal Oswal expects 3-4 million metric standard cubic metres per day of gas production from DUDP in the second half of FY27, progressing towards peak output of about 5 million metric standard cubic metres per day over two years.
DSF Blocks and KG-98/2
DSF blocks remain under development and are targeted for commissioning by the end of FY27. At KG-98/2, all 26 wells have been drilled, subsea infrastructure is substantially complete and key offshore facilities have been installed.
Current KG-98/2 output is about 24 thousand barrels per day of oil and 2.3 million metric standard cubic metres per day of gas. Management expects this to reach 25-30 thousand barrels per day of oil and 3-4 million metric standard cubic metres per day of gas over the next year, with peak potential of 35-40 thousand barrels per day of oil and 7-8 million metric standard cubic metres per day of gas.
Western Offshore, Exploration and Gas Realisations
ONGC has Rs 331 billion of projects underway in Western Offshore. BP's appointment as technical service provider across the region, following the Mumbai High intervention programme, is expected to support production optimisation. Motilal Oswal also highlights intensified exploration under Project DeepX and Samudra Manthan.
The broker expects New Well gas to improve gas realisations, as around 20 per cent and 27.5 per cent of gas production qualifies as New Well gas in FY27 and FY28, respectively.
Dividend Yield and Valuation
Motilal Oswal models around 40 per cent dividend payout in FY27, implying about a 6 per cent dividend yield at the CMP. ONGC trades at 5.6 times FY28E P/E, below its long-term one-year forward average of 6.5 times.
Key Risks
- Weaker crude oil or domestic gas realisations.
- Delayed or underperforming ramp-up at DUDP, KG-98/2, DSF blocks or Mumbai High.
- Adverse regulatory or fiscal changes, such as higher government levies or changes in gas-pricing mechanisms.
Disclaimer: This is a summary of a research report published by the broker/research house identified above. The views, recommendations, target prices and estimates are those of the respective broker and do not represent DSIJ investment advice. The summary may be AI-assisted, hence please refer to the original report for complete details, disclosures and risks.
