Oil India doubled investor money in a year while its big sister ONGC’s wells indicate a dry future

• Both oil producer Oil India and ONGC reported a strong set of numbers in Jan-Mar because of high crude oil and gas prices.
• However, ONGC missed analysts’ estimates and performed below expectations on low operating performance and high dry wells.
• Shares of Oil India doubled investors' money in the last one year whereas ONGC is not even close.

Two state-owned oil explorers -- Oil India and Oil and Natural Gas Corporation (ONGC) have been enjoying higher profits because of rising cost of crude oil. Yet, only one of them has been rewarding investors with huge returns.

Even though both are public sector companies and into similar businesses, there is a huge difference between their metrics. In the latest Jan-Mar earnings, Oil India delivered strong growth while ONGC’s performance was flat.

“Earnings performance of upstream PSUs was mixed with a strong 31% quarter-on-quarter increase in PAT for Oil India but largely flat quarter-on-quarter earnings for ONGC,” said a report by Sharekhan.

Meanwhile, net oil realization for both companies remained strong at around 25% and $95 per barrel for ONGC and $98 per barrel for Oil India.

The report also pointed out the divergence in operating performance as ONGC’s pre-tax profits went up by 16% while that of Oil India went up by a massive 55% — thanks to the global crude price spike.

It hence comes as no surprise that Oil India’s stock price went up by 110% in the last one year while ONGC’s 32% in spite of the many factors that aided both the organizations during the year.

Dry wells and drying financing
Although ONGC contributes to a third of India’s India's domestic oil and gas production, Oil India is on the list of every second analyst’s favourite. The difference between them is the burden of expenses. Apart from exploration costs and other expenses, ONGC’s employee costs also increased in the last financial year.

But the bigger worry is the dry wells and the cost that they come with. ONGC, with aging oil fields is having to spend more to pump out oil — which is weighing badly on its books and balance sheet.

JM Financial analysts cut ONGC’s FY23 and FY24 net profit estimates by 8% and 4% respectively to account for higher dry wells.

Refinery assets with higher production
On the contrary, its peer and a much younger Oil India is looking at production growth. Oil production is to increase by 30% while gas production is to grow by 70% at Oil India post completion of major projects in Assam, say analysts. NRL refinery’s expansion to 9 metric tonnes per annum from current (MTPA) 3 MTPA to come on stream by FY25.

Analysts at Sharekhan highlighted that they prefer Oil India among upstream PSUs as it is a play on both improving oil and gas realization and a recovery in refining margins. Unlike ONGC, Oil India is not a pure play upstream player and has refining assets too.

The management at Oil India guided strong volume growth in FY25 driven by commissioning of major oil and gas expansion along with Numaligarh Refinery’s (NRL) expansion projects.

“OINL is well placed to benefit from rising oil and gas prices and high gross refining margins and FY25E EBIDTA can increase to ₹210 billion (FY22- ₹105 billion) on higher volumes,” said a report by Prabhudas Lilladher.



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