ONGC: Fuelled for growth
Shares of Oil and Natural Gas Corporation (ONGC), on Tuesday, hit a fresh 52-week high of Rs 113.95 after rallying up 7% on the BSE on the back of rising oil prices.
Besides, Goldman Sachs Group Inc. predicted prices could advance above $70 in the coming months.
Thus far in the month of February, the stock of the state-owned oil exploration company has rallied 29%, as compared to 8.5% rise in the S&P BSE Sensex.
The state-run Oil & Gas explorer is ripping benefit of buoyant oil prices and potential overhaul in nominated block (APM) gas pricing.
Brent prices have recovered to USD65/bbl as demand recovery and strict output-cut compliance by OPEC+ has led to a supply deficit and inventory destocking. Further, large Covid-19-led stimulus announcements and recent extreme cold conditions in Texas affecting operations have also weighed in. With the arrival of summer driving season and personal mobility preference, higher gasoline demand should support prices ahead. For every USD5/bbl increase in oil realization.
ONGC’s management has remained upbeat on the government agreeing to remunerative gas pricing, which should at least cover the $3.5-3.7/mmbtu cost of production. Every $1/mmbtu rise in APM rate implies Rs2.6/sh EPS increase for the company.
ONGC has also indicated 98/2 output ramping up from current 0.3mmscmd to around 3mmscmd by May’21, 8- 9mmscmd in FY23 and 15mmscmd peak by FY24. Other positive factors include improving OPaL performance, consolidation of downstream entities OMPL-MRPL-HPCL and subsequent synergies, foray into gas marketing (cleaner sunrise sector) and GST in gas.
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