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ONGC: KG gas find filtered…

Mar 8, 2005

A lot of investor interest is being witnessed in the country’s largest exploration and production company i.e. ONGC over the past few trading sessions. Although high crude oil prices have been one of the major factors for the stock gains, acquisition of oil fields in Qatar, Egypt and the huge gas finds in the K-G basin cannot be ignored. Let us now look at the announcement regarding the gas finds in the K-G basin and filter it down to the numbers:

Gas finds: filtering into numbers
Reserves 8 TCF
Recovery rate 28%
Period 20 years
Realisation US$ 3.86
Revenues (US$ m) 437.4
Revenues (Rs bn) 19.2
Revenues (Rs m) 19,245.2
*at an annual production of 113,313,541 MMBTU

These gas finds are likely to be brought under commercial production in the FY06 and as per our estimates, this forms an additional 4.6% of the revenues for ONGC (based on our FY06 topline estimates).

The below mentioned table takes a peak at the impact of these finds on the EPS.

  Pre-gas effect gas effect
Revenues 413,676.0 432,921.0
(%) growth   4.7%
Op. profit 207,211.0 216,833.0
PAT 113,464.0 120,055.0
No. of shares 1,425.9 1,425.9
EPS 79.6 84.2
(%) change   5.8%
P/E 11.3 10.7


  1. The field is likely to witness commercial exploitation for a period of 20 years.

  2. Production begins in FY06

  3. ONGC is able to sell natural gas at market-determined prices. (US$ 3.86 per MMBTU).

  4. US$ = Rs 44.

  5. Operating margins of 50% maintained.

Note: We have not factored in these changes in the existing research report.

Our view:
We had recommended a BUY on the stock at Rs 840 in the month of December. With the positives such as overseas acquisitions and domestic fields now coming clear, we maintain our view on the stock. Further, the government has also indicated rationalization of natural gas prices, which would bring further upside for the stock.

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