The Indian government has granted Oil and Natural Gas Corporation (ONGC) permission to charge a 20% premium over the administrative price mechanism for gas produced from new wells and nomination fields. This move is expected to substantially boost ONGC’s earnings, with analysts predicting a 2-3% increase in net profits over the next two years.
The new pricing regime, applicable to 10% of ONGC’s current gas production, is a welcome respite for the company, which has been facing challenges in realizing fair prices for its gas production. With the premium pricing expected to apply to 20-25% of the company’s production in two to three years, ONGC’s profitability is set to soar.
According to Citi, the new pricing regime could lead to an increase in ONGC’s blended gas price realizations from $6.5 per million metric British thermal unit in fiscal 2024 to $7.5 per million metric British thermal unit in fiscal 2027. This increase will not only enhance ONGC’s profitability but also encourage further investment in exploration and production.
Jefferies has increased its net profit estimates for ONGC in fiscal 2026 and 2027 by 2% and 3%, respectively, in response to the anticipated volume impact. The brokerage has also raised its earnings per share estimates for the same periods by 2-3%.
This development is a positive sign for the Indian oil and gas sector, which has been facing challenges in recent times. With the government’s support, ONGC is well-positioned to capitalize on the growing demand for natural gas in India and emerge as a leader in the sector.
