ONGC offshore projects and low valuation offset persistent production drag

Investment View and Valuation

Motilal Oswal Financial Services maintained its Buy recommendation on Oil and Natural Gas Corporation Limited (ONGC) in its November 7, 2026 results update. The broker considers the valuation inexpensive despite continued production weakness.

At the report CMP of Rs232, ONGC traded at 5.2 times FY28E consolidated P/E, below its long-term one-year forward average of 6.3 times. After adjusting for listed investments valued at a 25 per cent discount and ONGC Videsh Limited (OVL), valued at Rs23 per share, Motilal Oswal estimates that the market is pricing ONGC's core business at a Brent crude price of about USD62 per barrel during 4QFY27 to FY28. This is below the broker's FY28 Brent assumption of USD75 per barrel.

The target price of Rs285 is based on valuing the standalone business at 6.5 times December 2027E EPS, investments at a 25 per cent discount to CMP and the OVL stake at 0.5 times FY25 book value per share.

2QFY27 Financial Performance

ONGC's 2QFY27 standalone revenue was in line with Motilal Oswal's estimate at Rs43,900 crore. Crude oil and gas sales were 4.4 mmt and 3.8 bcm, respectively, with both volumes 4 per cent below the broker's estimates. Oil realisation of USD92.3 per barrel exceeded the USD90 per barrel estimate.

The earnings beat reflected higher realisation, lower statutory levies and higher depreciation, dry-well write-offs and other income than expected. The board declared an interim dividend of Rs8 per share, equivalent to 160 per cent.

Production Outlook and Estimates

Production remains the key concern. Crude oil production fell 1 per cent QoQ and 5 per cent YoY in 2QFY27. Natural-gas production declined 2 per cent YoY but rose 2 per cent QoQ. Reservoir complexities at KG-DWN-98/2, monsoon-related delays at PRP-8 and PRP-9, and lower onshore gas offtake following disruptions at major consumers affected output.

Management guided for FY27 production of about 39 mmt equivalent and only 0.5 to 1 mmt growth in FY28. Motilal Oswal consequently reduced its domestic production estimates, including joint ventures, to 39.2 mmt for FY27 and 39.9 mmt for FY28, from 40.4 mmt and 41.1 mmt, respectively.

The broker reduced FY28 consolidated and standalone EBITDA estimates by 5 per cent and 7 per cent, respectively, and models about a 1 per cent annual volume decline over FY26 to FY28.

Development Projects and Operating Initiatives

Positive operating developments include two Western Offshore development awards: MBOSN-2005-1/SD-4/BS-17 and Ratna-1/NLM-14 additional development. The projects have combined capex of about Rs11,800 crore and expected hydrocarbon potential of about 22 mmt equivalent.

ONGC also awarded PRP-X, involving capex above Rs4,300 crore, to replace ageing subsea pipelines and support asset integrity and long-term production. BP's Technical Service Provider role was extended across Western Offshore, with the TSP-2 team mobilised in August 2026. Management said TSP-1 interventions were showing early results, although the gains were not quantified.

Exploration Catalysts

Exploration catalysts include a gas-bearing first Mahanadi deepwater well under Samudra Manthan and new onshore discoveries at Amraghat-1 and Vadatal-48 in Cambay.

• Four Samudra Manthan wells are planned in FY27 and up to 13 in FY28, subject to securing rigs in a tight deepwater-rig market.
• At KG-DWN-98/2, three gas wells are planned for hook-up in 4QFY27 and could add about 1.5 mmscmd.

Key Risks

• Continued production drag and the risk of an annual volume decline over FY26 to FY28.
• Uncertainty around deepwater-rig availability, which could affect planned Samudra Manthan wells.
• OPaL remains loss-making at the PAT level despite reporting Rs147 crore of EBITDA in 2QFY27.
• Venezuela legacy dues of about USD500 million remain unresolved, with no profits repatriated to date.