ONGC Mumbai High output and new-well gas offset KG-98/2 production challenges

Investment View and Valuation

Motilal Oswal Financial Services reiterates a BUY recommendation on ONGC, supported by valuation, improving new-well gas contribution, Mumbai High performance and a recovering ONGC Videsh portfolio. ONGC trades at 5.7 times FY28E consolidated P/E, below its long-term one-year forward average of 6.4 times.

After adjusting for listed investments valued at Rs 64 per share and ONGC Videsh valued at Rs 23 per share, Motilal Oswal believes the core-business valuation implies a Brent crude price of about USD 65 per barrel for 2QFY27 through FY28. The broker considers this assumption overly conservative.

Motilal Oswal derives its Rs 290 target price by valuing the standalone business at 6.5 times December 2027E EPS, investments at a 25 per cent discount to CMP, and the ONGC Videsh stake at 0.5 times FY25 book value per share.

1QFY27 Financial Performance

ONGC's standalone 1QFY27 revenue was Rs 46,500 crore, in line with Motilal Oswal's estimate. Weak production was offset by reported oil realisation of USD 99.5 per barrel. Standalone EBITDAX and adjusted PAT were ahead of estimates, aided by lower-than-expected dry-well write-offs and finance costs, as well as higher other income.

The quarter included an exchange loss of Rs 230 crore and higher-than-estimated other expenses.

Production Trends and Operational Concerns

Operational performance remains the key concern. Standalone crude production was flat sequentially and down 6 per cent year-on-year, while gas production fell 1 per cent sequentially and 2 per cent year-on-year. ONGC attributed the weakness to:

• Reservoir complexity at KG-98/2.
• Weather-related delays affecting Western Offshore pipelines.
• Commissioning-related shutdowns at MTPBP and DUDP.
• Lower gas offtake from isolated fields.

Management has guided for broadly flat year-on-year standalone volumes in FY27, while Motilal Oswal models about 1 per cent overall volume growth.

Western Offshore and New-Well Gas Outlook

Mumbai High and KG-98/2

Management commentary was constructive on Western Offshore. Mumbai High TSP-1 reached 107 per cent of baseline production and arrested natural decline. Management said the absolute increase in oil and gas production, net of a 6-7 per cent natural decline, was 1 per cent and 5-6 per cent, respectively.

Management expects oil production to be flat by FY27-end and gas output to increase by 1 billion cubic metres year-on-year. At KG-98/2, current output was 21 thousand barrels per day of oil and 1.5-1.7 million standard cubic metres per day of gas. Management expects gas production to exceed 3 million standard cubic metres per day in 4QFY27 once all gas wells are opened, with peak gas output of 6-7 million standard cubic metres per day gradually by 4QFY28 after CPP commissioning. Each well rework is estimated to cost about Rs 500 crore.

New-Well Gas and Exploration

New-well gas was a positive. Its volume share increased to about 24 per cent in 1QFY27 from 17 per cent in FY26. It contributed about 38 per cent of nomination gas revenue, generating Rs 4,000 crore in 1QFY27 and Rs 1,900 crore of incremental realisation over APM gas pricing.

ONGC commenced an exploratory well in the Mahanadi deepwater block under Samudra Manthan and made two discoveries during the quarter. The BP partnership has been expanded across the Western Offshore portfolio, where projects exceeding Rs 40,000 crore are under implementation. ONGC expects benefits from FY28.

ONGC Videsh and OPaL

ONGC Videsh's 1QFY27 oil and gas production was broadly flat year-on-year at 1.80 million metric tonnes and 0.68 billion cubic metres, respectively. Its recent performance improved mainly after Sakhalin-1 accounting restarted in January 2026.

Management expects Mozambique LNG production around CY28 or the start of FY29. Conversely, OPaL reported a Rs 610 crore loss in 1QFY27, compared with a Rs 70 crore loss in 4QFY26, as utilisation fell to 75 per cent from 93 per cent amid high feedstock costs.

Key Risks to the Investment Thesis

• Persistent reservoir issues at KG-98/2.
• Production and project commissioning delays.
• Flat FY27 volume growth.
• Continuing losses at OPaL.
• Sensitivity to crude realisations.