MOSL: ONGC (Buy)-Growth in gas production to continue-Key takeaways from our meeting with management

​ONGC: Growth in gas production to continue; Key takeaways from our meeting with management

(ONGC IN, Mkt Cap USD37.7b, CMP INR188, TP INR227, 21% Upside, Buy)

Gas production growth to continue

• Gas production growth over the near term is expected to be driven by the Daman, C26, S1/Vashistha and Bassein fields. Gas produced from S1/Vashistha is likely to command premium pricing.
  
• Commencement of production from the KG-DWN-98/2 block could see some delay from the earlier planned mid-2019. A total of 34 wells need to be drilled. A total of three rigs are expected to be deployed, with each rig drilling one well in three months.
  
• ONGC had recently acquired a stake in GSPC’s KG basin block. Rig rates for this block are being renegotiated, post which the fifth well would be drilled by the company. A plan for further development would be charted after getting data from the fifth well. We expect further delays in the project.
  

Oil production to remain flat

• WO26, B127 and Ratna are expected to increase oil production. Oil production from the nominated fields is expected to increase, while that from JVs is expected to decline. As a result, we expect flat oil production over FY18-20.
  
• Oil prices are expected to stabilize around current levels, led by normalization of unplanned shutdowns and increased US production of oil from shale.
  
• At current levels, the company does not expect subsidies to return; full realization is expected to continue.