Shares of Oil and Natural Gas Corporation (ONGC) have fallen about 5% since its March-quarter (Q4FY26) results, announced on Tuesday after market hours, disappointed investors despite higher realizations. The problem: an old villain—declining production.
ONGC’s total oil and natural gas production, including its share in joint ventures, fell 4.9% year-on-year in Q4FY26 to 9.8 million tonnes of oil equivalent (mmtoe). FY26 production declined 1%, missing annual guidance for the eighth straight year.
The management refrained from giving any guidance for FY27 in a departure from its past practice.
Q4FY26 output was hit sharply by a 20% decline in production from the KG-98/2 basin due to geological issues, delays in mobilizing foreign vendors and geopolitical constraints.
Reserve worries
Near-term production could remain under pressure, with ONGC’s management expecting oil output from the field to normalize only over the next year.
Beyond operational setbacks, a bigger concern is the depletion of proven oil reserves, or 1P reserves. ONGC’s total oil and gas production has declined from 45.9 mmtoe in FY19 to 38.9 mmtoe in FY26.
1P reserves refer to fields where a company has over a 90% probability of commercially extracting oil.
“We believe future production is likely to fall as ONGC’s 1P reserves are also reporting a declining trend. ONGC’s 1P reserves have slid in ten of the past 13 years with the last five years’ decline reported at a 2.7% CAGR over FY20–25,” said a Nuvama Institutional Equities report dated 27 May.
The brokerage, however, revised upwards its FY27-28 Ebitda estimates by 19% and 3%, respectively, citing higher crude oil prices and lower effective royalty.
BP boost
On the positive side, technical intervention by BP in the Mumbai High field has started yielding results, with production running at 102% and 108% of baseline levels for oil and gas, respectively.
Output is expected to improve further as ONGC ramps up capex in the field over FY27-28. Encouraged by the results, ONGC has entered into another agreement with BP covering the entire western offshore fields.
The intervention is projected to increase western offshore output by 24% over 10 years. The region currently contributes 60% of ONGC’s oil and 70% of its gas production.
Natural gas production is also expected to provide incremental support through a higher share of new well gas (NWG), which commands a price premium of about 20%.
NWG output rose to 9 million metric standard cubic metres per day (mmscmd) in April, accounting for 25% of total gas production versus 17% in FY26. This share is expected to rise to 30% in FY27 and 35% in FY28 with the ramp-up of Daman deepwater and other projects.
Earnings picture
ONGC’s average crude oil realization in Q4FY26 stood at $78.3 per barrel, up 27% sequentially amid the flare-up in the West Asia war and 6% higher year-on-year.
Standalone revenue rose about 3% to ₹35,900 crore, while Ebitda—adjusted for exploration write-offs—fell 7% to ₹17,800 crore due to higher expenses and statutory levies.
Consolidated revenue rose at a similar pace to ₹1.74 trillion, but Ebitda jumped 25% to ₹33,400 crore, aided by inventory gains at downstream subsidiary Hindustan Petroleum Corporation.
ONGC’s shares now trade at an enterprise value of 4.8 times FY27 estimated Ebitda, as per Bloomberg. With limited expectations of a near-term volume uptick, future stock performance is likely to hinge on crude price movements and the rising share of premium-priced new well gas in total production.