ONGC to maintain financial flexibility as earnings steady

New Delhi: State-owned ONGC's operating cash flows will rise over the next 12-24 months due to higher production volumes, stable earnings from domestic gas production, and the removal of a windfall tax on crude oil, S&P Global Ratings said on Friday.

"This should help the company maintain its good credit quality, despite its investment plans and healthy shareholder distributions," the rating agency said in a statement. ONGC is India's largest oil and gas producer. "We estimate that ONGC's domestic production volumes will rise by 8-10 per cent for fiscal 2024 (year ending March 31). The increase is attributable to the start of oil production from its block in the Krishna Godavari basin later this year," S&P said.

At the same time, production at the Sakhalin-1 project of ONGC Videsh Ltd (OVL) should also recover to fiscal 2022 levels, after a period of disruptions because of geopolitical issues. Oil and Natural Gas Corporation produced a total of 42.8 million tonne of oil equivalent (mmtoe) in fiscal 2023 compared with 43.4 mmtoe in fiscal 2022. OVL produced a total of 10.2 mmtoe in fiscal 2023, down from 12.3 mmtoe in fiscal 2022.

"Growth in production volumes will outstrip the impact of moderating oil prices on ONGC's earnings, in our view. We estimate the company's EBITDA at Rs 1-1.1 lakh crore over fiscals 2024 and 2025, compared with about Rs 98,700 crore in fiscal 2023," it said. S&P Global Ratings forecasts that the Brent crude oil price will be $90 per barrel for the rest of 2023 and $85 per barrel for 2024 and 2025.