ONGC Q2 reported revenue up by 6% QoQ basis. Skyrocketing Brent prices and severe winter may cause a setback in near term

ONGC reported revenue of Rs. 243.5b, 6%, at US $69.4/bbl. The gas sales stood at 4.3bcm, down 7% YoY however up by 4% QoQ. The oil sales stood at 5mmt, down by -1% YoY and -2% QoQ. The net realization stood at USD69.4/bbl, up by +6% QoQ. VAP sales stood at 777tmt, down 7% YoY and 1% QoQ. while EBITDA stood at Rs. 132bn which was up 57% YoY and 9% QoQ.

The downside in oil and gas production was mainly on account of the unruly conditions caused by cyclone Tauktae and the impact of COVID. Further delay in the mobilization of MOPU to the WO-16 Cluster project impacted production from this field.
 
International travel restrictions and COVID Impact has led to delay in gas production and logistics from the KG Basin. The peak production is expected at 14.5mmscmd and 45kbopd for gas and oil. OPAL’s performance is steady, and ONGC is improving process efficiencies to keep its profits positive. ONGC’s profits are also supported by a positive uptrend in Brent prices, led by the gas to oil switch, creating additional demand of 0.5mnbopd, with continued lower supply from OPEC+ with production cuts still at ~4mnbopd, resulting in inventory draws. As a result, the management has revised down its oil and gas guidance for FY22E to 22mmt and 22bcm from 23mmt and 25bcm earlier. Despite the continued delay and modest assumptions, ONGC’s gas production is likely to clock in at a CAGR of 7% over FY21–24E, with efforts to resist a decline in oil production. 

The expectation of a severe winter, coupled with supply constraints and lower inventory, has led to gas prices at international hubs trading at multi year highs The estimated normalization of Brent prices by endFY22 and build in assumptions of US $69/bbl, USD65/bbl, and US $60/bbl for FY22E, FY23E and FY24E.

An interim dividend of Rs. 5.5/share has been announced, which makes its dividend yield come upto 3.5% at CMP. Lower depreciation and higher other income resulted in PBT coming in around 18% 5b. The company realized the option of the new tax regime and recorded deferred tax benefit of INR98.5b during the quarter. Reported PAT came in at Rs. 183.5b, while adj. PAT for taxation stood at Rs. 85b (v/s Rs. 43b in 1QFY22 and Rs. 36b in 2QFY21). Capex guidance for FY22 remains unchanged at Rs. 295b.