Oil and Natural Gas Corporation Limited (ONGC) Earnings Call Transcript

Good afternoon, ladies and gentlemen. I'm Madri, moderator for the conference call. Welcome to ONGC's earnings conference call for quarter ended 30th June 2026. We have with us today Sri Anupam Agarwal, Director of Finance; and team who will interact with investors and analysts to discuss earnings for Q1 of financial year 2026 to 2027. [Operator Instructions] Please note this conference is recorded. . I would now like to hand over the floor to Mr. Shi Anupam Agarwal for his opening remarks.

Good afternoon, ladies and gentlemen. I'm Anupam Agarwal, Director of Finance, ONGC. I welcome you all to ONGC's earnings conference call for the first quarter of FY '26, '27. Thank you all for joining us today. I'm joined here by my colleagues from ONGC, Mr. Ajay Kumar Singh, President, Planning and Transformation; Mr. Satish Kumar Dwivedi, Chief JV and BD; Mr. Yogish Nayak, Chief Corporate Finance; Dr. Ravinder Singh Negi, Chief Treasury and Investor Relations; Mr. Sanjay Kumar Sharma; and Mr. Prakash Joshi from Investor Relations; Mr. Akhilesh Tiwari, Head, Corporate Accounts; and Mr. Manish Kumar from Exploration team. Mr. [indiscernible] has joined from [indiscernible]. This is financial results for the quarter ended 30th June 2026 were approved by the Board on 4th August 2026 and have already been disseminated through the stock exchanges along with our press release. This has also been sent to the analysts who are there on our mailing list. The first quarter has been a strong one for ONGC. We reported a standalone gross revenue of INR 46,450 crores, an increase of over 45% over the corresponding quarter of the last year. The stand-alone profit after tax stood at INR 17,034 crores, registering a robust growth of over year-on-year. This quarter also witnessed the highest over stand-alone quarterly cost before tax of INR [ 22,038 ] crores. Our average crude price realization has been INR 9.45 per barrel. Despite investment pressures and gross exchange rate moments, OGC maintained operating expenditure broadly at the same level as the corresponding quarter of the previous year. This reflects the insult of sustained operational expense initiatives and continue on optimizing controllable operating costs across the organization. On a consolidated basis, ONGC Group reported a profit after tax of INR 6,554 crores during the first quarter of FY '27, while the group's consolidated performance was impacted by HPCL's net loss of INR 1,255 roles, primarily due to under recoveries on petroleum products following the sharp increase in crude oil prices during the West Asia crisis, this was substantially cushioned by the robust performance of our other subsidiaries, particularly on digitization and MRPL, underscoring the resilience and divestation of ONGC Group. The quarter reflects continued progress across 3 important transformations that are shipping in the future, transforming our cash portfolio, transforming our mature offshore assets and transforming India's deepwater exploration landscape. The first transformation is unfolding through the growing contribution of new well gas. During the quarter, revenue from new well gas reached nearly INR 4,000 crores, generating an incremental realization of [indiscernible] now contribute approximately 38% of the revenue from our nomination gas portfolio, demonstrating the steady migration towards a more unloading gas [indiscernible]. The contribution of gas to ONGC stand on revenue has also increased from around 25% to 28% in FY '26. And as the share of new well gas continues to expand. On the production front, overall oil and gas product during the quarter remained broadly stable. The year-on-year variation was mainly attributable to temporary operational factors, including visual complexities and deepwater [indiscernible], 3 commissioning activities associated with major offshore projects, pipeline in [indiscernible] and lower gas offtake from certain isolated fees due to customer site disruptions. Most of these are education-related channels rather than structural concerns regarding our asset base. With the progressive commissioning of [indiscernible] projects such as the Daman upside development project expansion of PSP program and monetization of [indiscernible] we expect the production trend to progressively improve in the coming quarters. Our second transformation is centered on renewed Western offshore under which ends is implementing one of the largest investment program and [indiscernible] offshore operations with projects exceeding INR 40,000 crores under various stages of education. [indiscernible] pipeline replacement reserving enhanced water injection, production system upgrades and several field development initiatives being undertaken in coalition with our technical service partners EP encouraged by the positive outcome under the first page of the partnership in Mumbai, we have now expanded this model across the entire restructure portfolio. During the quarter, Mumbai [indiscernible] results with oil production chain around 107% of contextual base [indiscernible] and gas production or 113% of the contractual baseline. The third transformation relates to deepwater exploration, which we believe represents the next major [indiscernible] for India's [indiscernible]. Recent approval by the government of [indiscernible], the National Offshore exploration [indiscernible] a total outlay of [indiscernible] is a length initiative that reflects a decisive [indiscernible] unlocking India's deepwater [indiscernible] and creating a favor investment environment for offshore exploration. As India's flagship E&P company [indiscernible] play a central role in business or mission during the quarter achieved an important milestone by commencing timing of our first deepwater export well in the Manati offshore reason under the [indiscernible] program. We continue to make steady progress in strengthening our energy portfolio through ODM, our minable energy portfolio has now reached 2.853 gigawatts, supported by both organic expansion and the strategic operations [indiscernible] awarded a 300-megawatt ISTS-connected solar power project for capital consumption last year and corresponding 250-megawatt wind project has been awarded in June 2026. To conclude, our immediate focus is on the successful execution of major production projects can be monetization of new developments and accelerate offshore exploration. With that, I conclude my opening remarks. Thank you.

[Operator Instructions] First question comes from Yogesh Patil from Dolat Capital.

On oil production side, if we look at the oil production on a sequential basis, nominated fields oil production has increased 1% Q-on-Q while the ONGC operated block NLP is indicating a sharp decline of 8%. So just wanted to understand the nominated field oil production growth is backed by the TSP program at Western Offshore or is there any reason? That's one. And secondly, I wanted to understand on KG 98 production, what is the current rate of production there and how it has declined over the last 3 months? That would be helpful.

Yes, Yogesh. You are correct. Actually, we have been able to maintain the production. This is last your Q4 production versus the first quarter production, it is almost flat. There has been some decline vis-a-vis Q1 of the last year, mainly as I got out various factors. Regarding the increase you are talking about the nomination field, yes, PSP is one of the major factors, Mumbai [indiscernible] is there. And there, we have already reached about 17% of our baseline production. Regarding this 982, there has been some challenges we have been seeing and the production of oil is currently around 21,000 barrels per day, and that is around...

1.5.

Okay. Sir, I just wanted to continue on the same question. You have erected on the nominated sales side kind of a product and like natural production decline. So how one should look into the FY '27 and '28 nominated field oil production guidance, if you could give us? It would be helpful for us.

I like to give a total stand-alone production of index for the next year. I see last year, our oil plus gas, behind alone production, excluding in the range of [indiscernible] MMT. So this year, we expect to reach about 39 MMT oil plus gas, the upside will come mainly from gas because many of the projects like DoD, which is already progressing. And by December, we'll be reaching it to [indiscernible] the DPP commissioning in the core 1.3 MMSCMD will come. And [indiscernible] 0.5 MMSCMD will come. There will be other upside coming from TSP 1 and 2 both are in place now. So some initial gains we'll see on that side also.

Just to add [indiscernible] saying, these 2 MMSCMD would be over and above 1, which we are currently producing from [indiscernible] like that quarter, it would be MMSCMD. So we see about 1 BC gas per year from the new developments, which I am talking about that for the current year, and next year, another overall almost 1 MOE of oil and gas gain will be there for '27, '28.

Okay. Sir, lastly, just to break it down in simpler fashion. Can you give us a guidance for oil production for FY '27 and '28 and gas production for FY '27,'28 if you have added numbers.

See I had told about 39 MMSCMD for the current year and [indiscernible] for the next year, oil and gas taken together. So backup will be about...

So I think it will be [indiscernible]

The next question comes from Nitin Tiwari from PhillipCapital.

Congratulations on the set of number in this quarter. Sir, my question actually was related to one of the items which you mentioned in the notes to our accounts, investors related to the Panama to the arbitration, which is going on. So currently, the liability is certainly some intent liabilities of significant about [indiscernible], it's almost like I mean could we consider to be a quarter of your operating profit as well. So my question with respect to that is that was the communication which was said by ministry, was that taken as a binding directive? Or I mean, the [indiscernible] was also evaluated on these of independent legal advice that on to participate in this arbitration. And given that you have not participated as a payment, have you like innovate [indiscernible] affected the demand that is made by the [indiscernible] and that backdrop, I mean I'm just -- what I'm trying to get at is that how have you ensured that your own economic interests are protected and also that of our minority shareholders [indiscernible] interests are protected, given that you are not participating in this arbitration.

That's a good question. [indiscernible] by the government directive. But at the same time, we try to ensure our economic interest of product tax. So in case one government is being directed. The government -- when we discuss with the government, there is no formal directive, it is a kind of understanding, but we should not be going for this arbitration against the government or government -- 2 arms of government fighting with each other, it is not good. So what was decided in that discussion was -- but let the other parties continue to be in this case. And what our decision will be there, that will be applicable for NDC. So our interest is also protected and we are not [indiscernible] So that is the way. So I don't see there is any loss to the interest of any shareholder. What's [indiscernible] will be done that will be applicable to us.

So this is an outcome of your discussion with government? Or what was this an outcome of your -- basically discussion with the court because court tomorrow might decide something is that only arbitrated parties will get the [indiscernible] and the party which has not arbitrated has accepted the demand and therefore, is not liable to get any benefits out of this arbitration. I mean, that [indiscernible] take it. I mean given this is your own internal understanding. Is that the right read over here? .

I would just like to say, it is a joint venture case where both parties out of [indiscernible] so it is not one party case versus other party. It is the joint venture versus the government. One party of the joint venture has gone in the court. What our decision will be there, that will be applicable across. That is the understanding and that is my understanding government also.

Okay. So basically, the outcome would be applicable to the JV consolidation and not only to the parties arbitrating?

That is the normal principles of JV operations.

Next question comes from Mayank Maheshwari from Morgan Stanley.

Sir, I had a question around what you talked about around upside risk on exploration because of the government incentives that have been given around this [indiscernible] program. Can you kind of talk us through in terms of the role ONGC will play in these because in the past 5 to 7 years, you're not really seeing too much of high-risk ultra deepwater exploration drilling coming through on ONGC and a connected question around that is the challenges that you started to face on KG, what are they? And how are you kind of thinking about it in terms of resolving it as well?

Mayank, it is a very good question. And obviously, it is anticipated also somebody talking about [indiscernible]So in national oil company, we will be playing a major role in this project. So your question is, last 4, 5 years, we have not done some major deepwater exploration activity. So it is not correct. We have been continuously carrying out exploration about 100 wells we do. And last year also, we drilled about 4 deepwater export levels. These were also one static graphic that we have already built another well we have expect. And this is basically recognition by the government as well as by ONGC post format, the kind of need of energy security for the country. So government is very conscious that energy security is very, very important. And for that base is required to be done, that will be done. You would have also seen many of the initiatives which government has taken in the recent year, like fiscal stability they have given that kind of new benefits they have given in the oil and gas and new gas pricing all that incentives have made a lot of difference in the process. The kind of prices we are seeing, before hormones, the general consensus was coming, but oil prices will settle down [indiscernible] but now with this almost crisis, there is a security layer, which is coming on the baseline, and we believe it will be $25 plus in the long run. So that is our expectation. With that, many of the fields which we thought might not be available are working out in the range where they are viable, and we will like to develop them for the [indiscernible] for the country. Same is the case for deepwater goes at $65 or $60 if you see many of the big bottles or high risk, high reward gain. And the size of reservoir, the economics has to be good to develop that. So maybe some of the things might not have been good at to explore, but at $75 plus kind of thing, that will be continuing to be very, very lucrative also and important for energy security. So we are committed for this deep automation of the Government of India. And this is first time in the history of oil and gas, that government has allocated INR 54,000 crores from its own city for this new exploration, new oil and gas exploration. So as National Oil Company, we remain committed, we will do. And because a major part of this is being funded by the government of India, so it does not have any major financial impact for the company. But at the same time, it gives us upside in terms of a new results we find and new oil and gas development activities we undertake. I hope I could clarify you.

Sir, I think just a follow-up around this was how does this incentives of close to around $9 billion that the government has given help you lower your breakeven cost to kind of develop any project on the ultra-deepwater side. And if you can also give us a bit of a sense of which are the more prospective basins apart from [indiscernible] obviously, which is I think you've been drilling. I think you can see in the country where you see prospects for [indiscernible] the quarter come through.

Deepwater machine, the government has announced is the first page of that, which is applicable to 2031. And that is mainly the exploded pace. The next page will be available beyond '31 once this space results will be known.

We -- each deepwater will cost about INR 1,000 crores. We do not know how much government of India will fund on that and how it will total being booked out and will be shared in due course. But the support will be coming, it will be reducing our cost of exploration. And obviously, the bad dynamics of the project will be better. If export cost is lower, [indiscernible] will be better. And we will see how it will help us in economic side, the feasibility stage when the substantial amount of oil and gas risers are found. .

And regarding the area based on demand, you already told, Manabe is one where we have already [indiscernible] well, and this is the same reason where we had made earlier discoveries, [indiscernible] one more we had made. So that is one. And then we are also working in [indiscernible] where we will bring something. And we are also going to participate in [indiscernible] big way. And a lot of blocks are on offer and deepwater, and we will decide which areas in those [indiscernible]

And will it be in partnership with global majors or you want to kind of do it stand-alone?

You see, deep water is a high risk [indiscernible]. Our internal [indiscernible] where our international partners want to come and join with us, they are welcome. We keep on inviting them discussing with them. And we believe with this -- the kind of incentives which Government of India has given and their major concern was fiscal stability. That is already assured by the government of India. So some of the global networks will come in terms of the block, we have bid with BP and Reliance together. Much round also wherever we find the global partners or interested, we will take them along for this deep automation of the government of India.

The next question comes from [indiscernible]

I have 2 questions. So the first one is on the operational challenges that you are facing, which has led to production issues. Just to -- if you could elaborate on the execution milestones that you have now to improve or, let's say, debottleneck these fields so that the operational issues are resolved, let's say, by 3Q? That would be great. And secondly, did I share it correctly that the results of the first PSP are that you are 7% higher than the baseline production. So on an absolute sense, if you could help us understand the results of the TSP 1 areas that you've covered with BP. If you can give us a sense of what the production was before the partnership? And what is it right now maybe if you give the absolute numbers, it will be more helpful.

I will take the second question regarding the TSP. [indiscernible] So Mumbai High, when we talk about the gain against the baseline. So general oil and gas sector will start a natural den rate, and that is about 5% to 6%. Over that, we see the increase. So 7% is coming over the natural demand rate of 6% to 7%. So overall, absolute terms, the increase will be about 1% to 2% for Mumbai High. Gas is about 12% to 13%. So there, it is about 5% to 6%. And there you would have heard in last investor call by [indiscernible] thing that is, and this is gradually moving from an oil based to a gas based. So -- and that is the story that happened in the past because gas prices were not renovative. Many which were discovered. They were not renovative, we were not able to develop. Prices we are having today, new gas prices, but many of those wins have become commercially feasible, and we are developing them and that is how we are saying that INR 40,000 crores out of the projects are already under execution in Western offshore. And more projects we are undertaking. Those are under discussion at the Board level, and you will get to know in [indiscernible]. Regarding operational challenges, when you talk [indiscernible], it is more than operational. It is basically some reservoir related challenges. We have seen certain surprises are there. We are getting a study on the technical experts and based on that, we will be taking further decision. But as far as Western offshore is concerned, that continues to be the flagship for [indiscernible] and there are many projects we have brought in. Last quarter, operational challenge was mainly 3 monsoon well that impacted some of the offshore installation of platforms. And also a lot of activities are going on. So during that process, you have to close certain well because you cannot continue with the production from the brownfield development periods when we are doing the job on the same platform. So those challenges are there, but we believe post monsoon, we will be able to make up all that. And by the end of the year, we will see that production of oil will be almost a level of the last year and gas will be higher by about [indiscernible]

Okay. That's very full. Just 2 follow-ups. How many wells are currently operational in ADW and [indiscernible] for oil and for gas, that's one follow-up. And the second one is the rest of Western offshore, the new TSP contract that you have signed. Are you saying that because you have now transitioned to a new TSP contract, the wells that were closed will be reopened and the production recovery hinges on your work with [indiscernible] in the western of your region? .

I will take the second question first. And the first question, I will hand over to our [indiscernible]. So regarding the closure of well-being execution of the projects, that is a normal phenomenon. It doesn't have to do anything with TSP or anything. So it is a normal phenomena when you go install new platform, you connect those platforms. Some of the equity has to be temporarily stopped. So that is a natural phenomenon. It will continue -- it will clear on its own. Yes, TSP is helping us in how to develop some of the projects they are trying to help us to decide extraction is traded, what kind of platforms we should produce, how to optimize the software facilities. So all those benefits we are taking. I will now hand over to Mr. Ajay Kumar to give answer to your first question.

Yes. Good afternoon. I'm Ajay Singh, Resident Planning and Transformation. Question related to 98 by 2 housing wells, we are open. We opened all the tin wells, and it is being produced of [indiscernible] be open once the CPP is commissioned, which is in progress, and we are planning to connect with the subsea wells and control system is going to be commissioned portly. We will start production from gas wells also. That is likely to start somewhere in the month of October, November. Hope I answered your questions.

Lastly, if you could help us with your peak production guidance for [indiscernible] if possible, to share on the gas side or I understand your challenge.

As presently, we are producing there about 1.5 million to 1.7 million [indiscernible] day. And with opening of balance 3 events, we expect additional 1.5 MMSCMD. So all put together, it will be 3 million plus gas will be produced.

Right. And by when do you reach this peak, 3 million?

By Q4.

Next question comes from Sabri Hazarika from Emkay Global.

Congratulations on some good numbers. So I have 2 questions but relating to OVL. The first question is I just wanted to round up on the status of various assets of including Mozambique, the status of Sakhalin, Venezuela and Brazil. So a round up on that, then I'll come to the next question. .

I think OVL was passing through a rough patch for last 4 years, post Ukraine crisis. And the [indiscernible] because the most important asset of OVL Group was not with us for about 4 years because the government of Russia had taken over the assets and converted into incorporated entities. Earlier, it was unincorporated entity. Last year, sometime in November, December, we were able to take it back after making certain condition precedents. I hope you are aware. So I will not go into details for that. So that is one thing. And with [indiscernible] back in our portfolio, the OVL is back in the robust profit scenario. So last quarter again, about INR 1,000 crores they made this quarter, again, INR 1,000 crores. So you see the OVL which was doing annually about INR 500 crores to INR 600 crores per annum. Now it is INR 1,000 crores for quarter, which is coming from [indiscernible] and some slip coming from the higher prices. Then Mozambique, again, is a positive. It was [indiscernible]. Last year, about August of September, [indiscernible]. The activities are going on in full swing. And now we expect sometime in end of '28 or beginning of '29, the production will start from the Mozambique project. This is, again, a very important project from the national security perspective also. And gas, we will have a share of about 3 MMT from that project. And that is just the initial phase. There are additional phases which will be coming under this Mozambique project. DMC project is where we are partnered with Petrobras, and that project is also going on well. And by the work for FPSO has already been awarded, and we expect the first oil starting from 0. So all the [indiscernible] evolving story, and you might be aware that we recently managed to get OpEx license. So now we have full freedom to walk on Venezuela project because earlier we were restricting our operations there because of the sanction related risk. So those risks are behind us. The government of Venezuela has already enacted the new petroleum law in that they are giving some additional fiscal incentives development of the resources. [indiscernible] already in touch with the Venezuelan authorities in association with our JV partners. We are there in 2 projects [indiscernible] Venezuela, you know the place the largest oil and gas results are found. It is the #1 in terms of results, not the Saudi Arabia. So it is a focus area for this. All these projects are shallow debt onshore process where [indiscernible] has full expertise, the kind of projects we process from in [indiscernible] that kind of regime places there. So we are very brief on for Venezuela and we believe very soon, we see some positive development, the new agreement signed and we taking over the operatorship for some of those projects from the [indiscernible]

Just a small follow-up. So your VL PAT, excluding impairment was INR 2,260 crores in Q4. Now it has come down to INR 1,140 crores despite oil prices going up. So I've seen the revenue has gone up, but I think equity profit share, that number has gone down. So can you just give us some clarity on how the accounting is happening here and why we are not seeing the benefit of oil prices? And when exactly was Sakhalin accounted back into the accounts?

OVL is not one single project single companies. It is a mix of multiple sales in multiple countries, which continues its own [indiscernible] own geopolitical situation. So first, you talked about Sakhalin. Sakhalin, we could get back in December, and we started accounting for in our operating loss from the January 2026. So that is the first. The second thing is this quarter, there was some surprise you are talking about is mainly our realization from Russian assets were not as good as they should have been. So because of the kind of geopolitical situation is happening. So Russian assets, the realization, it was not at the same level because of the price cap related concern. But otherwise, OVL has done well, both in Sakhalin as well as in other assets. I mean OVL being in international market, most of the products we get international prices.

The next question comes from Vikash Jain from CLSA India.

So just a couple of clarifications. Firstly, is peak production of the KG asset? What is it likely to be for gas? And by when are we going to reach that peak production? .

I'll answer the query. With commissioning of CPP and again, we have some plan to reactivate and enhance the production from [indiscernible] gas wells. We are expecting more gases, and it will be in both 6 million to 7 million. It will be somewhere not in Q4 because we have to reenter into that usual gas since we have to reenter and we have to start production from there. So somewhere, you can say that Q4 of '27, '28, we will be reaching this number.

Okay. So we are right now at 1.5%. You say that we will be about 3-plus in this October, December. And that will then go to about 7 MMSCMD in another 3, 4 quarters. Is that how one should think about it? Okay. And the other thing that you also mentioned was in the October-December quarter, there could be another 2 CMD incrementally coming from Daman upside plus this 1.5%, and there was another half that you mentioned from the [indiscernible] project, right. So there is going to be an incremental for MMSCMD, which on your base is roughly equal to 8% increase in production in the October to December quarter. Is that roughly how I should be looking at?