For a nation of 1.44 billion people grappling with the burden of importing nearly 83% of its oil requirements, the state-run behemoth, Oil & Natural Gas Corporation (ONGC), has emerged as a game-changer.
In a groundbreaking development, ONGC has commenced oil production from its deepwater block in the Krishna-Godavari (KG) basin, marking a significant milestone that promises to alleviate the strain on the government’s hefty oil import bills. Additionally, the company has struck gold by discovering natural gas in the Mahanadi Basin deepwater.
What’s Happening?
On January 7, 2024, ONGC, responsible for approximately 70% of India’s domestic oil and gas production, announced the initiation of oil production in its deepwater block, KG-DWN-98/2, situated in the Krishna-Godavari basin off the Kakinada coast in the Bay of Bengal. This move is projected to boost oil and gas production by 11% and 15%, respectively. Noteworthy is the company’s innovative use of ‘pipe-in-pipe technology,’ a pioneering initiative in India, to overcome the technical challenges posed by the waxy nature of crude.
In a remarkable feat, the company successfully executed Phase 1 of the project in March 2020, initiating gas production from the U field of the KG-DWN-98/2 block within a record period of 10 months, overcoming the challenges posed by the COVID-19 pandemic.
Simultaneously, ONGC has made two natural gas discoveries in the Mahanadi basin deepwater block in the Bay of Bengal, with ongoing assessments for pool size and commercial viability.
Over a span of over 60 years of exploration, ONGC has successfully discovered 8 out of the 9 productive basins in India.
What Does this Development Mean for India?
The KG Basin breakthrough signifies a substantial leap toward India’s goal of self-sufficiency and enhanced energy security. According to Hardeep Singh Puri, Union Minister for Petroleum and Natural Gas, as mentioned in The Economic Times, the project is anticipated to contribute 7% to India’s current oil and gas production. Prime Minister Narendra Modi lauded the development as a ‘remarkable step’ in India’s energy journey.
Meanwhile, the Mahanadi Basin discoveries align with India’s objective of increasing natural gas in the total energy basket to 15% by 2030, up from the current 6.3%.
What’s in it for Investors?
Following the KG Basin announcement, ONGC’s stock witnessed a 1% surge on January 8, 2024, contributing to an overall gain of approximately 45% in the past year.
As Phase 2 of the project nears completion in June 2024, investors should closely monitor the company’s fundamentals, anticipating potential earnings upgrades as oil and gas output increases. Notably, the stock offers a compelling dividend yield of 5.3% based on the January 10, 2024, closing prices.
Investors must also remain vigilant regarding the impact of Brent crude and natural gas prices on the company’s profitability. A note of caution is sounded regarding ONGC’s plans for a Rs 1 lakh crore investment in the petrochemical business, a segment known for its challenges.
What’s Next?
The future appears promising as ONGC confirms that the flagship project is on track, with the final phase scheduled for completion by June 2024. Subsequently, a gradual ramp-up will lead to the planned peak production of 45,000 barrels of oil per day (bopd) and 10 MMSCMD of gas from the deep-water KG-DWN-98/2 Block.
The company assures investors that the loss of production from matured fields in Q2 FY24 will be offset by additional production from upcoming projects in subsequent quarters, though the trajectory of oil and gas prices remains a critical factor to watch.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
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