ONGC share price today is Rs 122.5, up Rs 4.75 or 4%. ONGC share price has nearly doubled from its 52 week low of Rs 64.1. ONGC share price touched a 52 week high of Rs 123.8 today. Market cap of ONGC is over 1.54 lk cr. ONGC is the second top gainer on Nifty today after Titan. ONGC share price witnessed strong volumes on the counter this week and the stock surged up with heavy volumes. 

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Emkay says that Oil prices near USD70/bbl and the rise in broader energy complex augur well for ONGC. FY22/23 earnings estimates and target price of Rs 130 are based on assumption of USD 55- 56/bbl Brent prices, and hence they have a material upside. Emkay estimates a 58% increase in the domestic gas price to USD 2.8/mmbtu GCV in Oct’21 as global gas benchmarks strengthen. Current Alberta-Henry Hub rates at USD 2.5- 3.0/mmbtu and NBP (National Balancing Point.) near USD 10 imply a spot realization of USD 4.4/mmbtu for ONGC. 

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ONGC’s bidding for 2mmscmd of KG 98/2 gas is underway. While the current ceiling is USD3.6/mmbtu, we estimate it to jump to USD6-7/mmbtu in Oct’21 (closer to 10.5% of Brent slope sought) due to the rise in prices of alternate fuels (naphtha-FO) and LNG. The 2mmscmd first 98/2 bidding round is likely to be followed by a larger 5mmscmd round toward the year end, thereby adding over 10% to current output. Hence, ONGC could enter a cycle of production growth along with higher realization. 

Emkay says that Brent prices continue to hover near USD70/bbl, driven by the prospects of a global demand recovery and OPEC+’s production discipline. Positive near-term demand-supply balance with inventory destocking would provide support and unless the OPEC deal breaks down, a significant downside risk to oil prices is low. Our current Brent price assumption is USD55/56 for FY22/23, though there is an upside risk to the same. Every USD5/bbl increase in oil realization improves ONGC’s FY22E EPS by Rs 3 per share or 22%.

While Emkay is cautiously optimistic on domestic gas pricing reforms, they estimate a 58% rise in formula prices due to the rise in global gas benchmarks. In fact current rates imply a USD 4.4/mmbtu spot price, which is 2.5x of prevailing USD 1.79/mmbtu, GCV. Rise in prices of alternate fuels like naphtha, FO and coal and LNG implies that deep water HP-HT ceiling should also increase from USD 3.6/mmbtu to USD 6-7/mmbtu, GCV in H2FY22. This would boost KGDWN-98/2 gas realization for ONGC.

ONGC’s first tender of 2mmscmd of KG 98/2 gas is under bidding and supplies are expected to start by Jul '21. ONGC has sought 10.5% of Brent with a term of 3 to 5 years. A total of 7mmscmd is over 10% of ONGC’s current gas output, thereby leading to a sizable production growth in CY22. ONGC has envisaged 15mmscmd of peak output from 98/2. Emkay values ONGC’s standalone business at 4x FY23E EV/EBITDA and listed investments at a 50% holdco discount to arrive at a target price of Rs 130/sh.