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Mr. Harshad Katkar, Institutional Research Analyst, HDFC Securities
Rising domestic gas supply and improvement in oil and gas realisation should drive upstream companies' earnings growth and valuations. We estimate APM gas price to be revised upwards by over 60% to ~USD 3/mmbtu in H2FY22, and further by over 45% to >USD 4/mmbtu in H1FY23. We believe Brent crude price, currently at >USD 75/bbl, should remain elevated, as OPEC supply growth is likely to lag global demand growth. We estimate 3% CAGR oil & gas production growth and 28% CAGR improvement in realisation for ONGC and OIL over FY21-23E should drive earnings growth of up to 30-45% CAGR (FY21-FY23E). Further, it should lead to stock price upside potential of over 26-36% for ONGC and OIL. On FY23E, ONGC is trading at a PER of 3.8 and OIL is trading at 3.1 PER.
Oil price to remain elevated over the medium term: Brent crude price is currently at >USD 75/bbl, up 47% YTD, driven by recovery in global demand with opening up of economies. The US was hit by Hurricane Ida in Jul end, which has resulted in disruption of production from Gulf of Mexico (GoM) of ~1.7mb/d in Aug. The IEA expects supply from GoM to normalise by Q4CY22. With crude oil and product inventory in lower half of the five-year range and EIA estimating global crude oil supply growth to lag demand growth in 2021 as economy global recovery continues to gather pace, we see an upside risk to crude oil prices.
Domestic gas prices to witness a sharp jump: We estimate the domestic APM gas price to be revised upwards by over 60% to ~USD 3/mmbtu in H2FY22, and further by over 45% to >USD 4/mmbtu in H1FY23 from current price of USD 1.79/mmbtu. The APM gas price, which is currently at a decadal low, should rise sharply, supported by firming up of global gas prices post unlocking of economies and the current shortage of supply in Europe ahead of the winter season.
Improving realisation to benefit upstream companies: We expect, in FY23E, ONGC (standalone) to produce 23.0 mmt of oil and 24.8 bcm of gas, and OIL to produce 3.2 mmt of oil and 2.6 bcm of gas. Increasing gas prices and rising Brent crude oil price should improve realisation and in turn drive earnings CAGR of 30-54% over FY21-FY23E for ONGC and OIL. ONGC should also benefit from increase in gas production by up to 12mmscmd over FY21-25E as production from its KG basin blocks. Every USD10/bbl change in oil price realisation changes ONGC's FY23E earnings by INR 7.2/share (19.5%) and OIL's FY23E earnings by INR 8.0/share (11.3%). Every USD1/mmbtu change in gas price re
What are you on about Percy? I don't want it to drift. I already have as much as I want, at the moment. I would be delighted if it went up. I don't believe I have mentioned cash burn or dilution for yonks, but since you insist. Cash burn is always a fact of life and further dilution may or may not be necessary with Roland at the helm. Gla.
Got to say I'm pleasantly surprised at the small drop today. Maybe it means news is still on the way. Hi Callum. Don't know if you watch " Pointless" but your other alias " V for Vendetta" was a pointless answer in the final round the other day. The category was John Hurt films. Atb.
Ha Gordon Me Researcher in Chief, that made me laugh :) Afraid Im busy in the real world but Ive told everyone a few weeks back what my holding is and at what price. My moneys on that Pre-Feasibility Report report from April 2019 , the old school know what i am on about. Might take a few years but that what im betting on. Of course given the real world a plan is one thing but delivering its another so I guess thats why Roland get paid. Gla
Percy My advice would be buy as many as you can Things are starting to fall into place Cambay is ready to produce after a 3yr deadlock Also new carbon capture projects been mentioned Wouldn’t be surprised to see multiple sp rises hopefully for Xmas
Thanks Espen. Don't think I would quite go that far. I regard Callum as our researcher in chief, although I am usually less optimistic than him Percy. I can't possibly advise you on whether to get in or stay out. Not sure what I have said recently that shines a bad light on Oilex. I first bought into Oilex in 2015 at 2.5p. I averaged down over the years and by late 2019 had 6.6 million shares at an average of 0.32. All of that time it seemed good times were just around the corner. By late 2020 they were down to 0.06 and I was 90% sure I had lost my cash. Then out of the blue came the news that Oilex had got lucky. The preferred buyer of gspc's share had dropped out and Oilex were getting it on the cheap. On April 6th, against all expectations I was able to get our with a profit at 0.407. I have since got back in with 5 million at an average of 0.22 or if I deduct my previous profit from the cost, an average of 0.10. My current position is that yes I believe I can make a further profit from here, but I am not in the camp that says this can suddenly go to multiple pence. Don't see how that can happen until the new Wells are drilled in about a year. Even then it is very dependent on the success of the new techniques. If course Roland's new projects may give a boost before then. Hope so. I have come to realise that on any day, news can give a boost far in excess of what is justified by the facts. Thus gives an opportunity to get out with a profit and then back in later at a lower price, as Conger did recently. I certainly don't believe that anything I or anyone else sayd on here influences the price one way or the other. Atb. Gla
Percy, Gordon has more historical experience with this share than anyone else here. I’d say he is a realist, he has shares (bought in recently), so he certainly believes in it. As do I, who also have been in since a cold years. Atb