Brokerages are positive on ONGC after government hiked premiums for new gas wells

The brokerage houses remained positive about Oil and natural gas company (ONGC) after the government announced higher premiums for new gas sources.

What happened: ONGC said on Monday that the Ministry of Petroleum and Natural Gas had announced a 20% premium on gas produced from new wells or interventions.

Previously, the domestic gas price (APM) was 10% of the Indian crude oil basket price. The new surcharges apply to the oil fields of ONGC and Oil India.

ONGC currently has two projects in the pipeline: the Daman Upside Development project and the integrated development of four contract areas under DSF-II with a total cost of around Rs 13,800 crore.

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Brokerage Views: Jefferies maintained its Buy rating and raised the price target to ₹420, increasing consolidated earnings per share forecasts for FY26 and FY27 by 2%-3%.

According to the brokerage firm, ONGC’s valuation remains cheap as the stock is trading at a discount to Nifty 50. The increase in production in KG basin and removal of upstream cess are positive triggers, the research firm added.

Citi maintained its buy rating with a target price of Rs 350. The notification would be based on 10% of ONGC’s current gas production, which will rise to 20-25% of production in 2-3 years, the research firm noted.

ONGC’s blended APM price realizations could increase from USD 6.5 per million British Thermal Unit in FY24 to USD 7.5 per million British Thermal Unit in FY27.

The brokerage said each dollar per million British thermal units increases consolidated earnings per share by 7 to 8 percent.

Price promotion: Shares of ONGC rose 0.10% to ₹341.65 on Tuesday morning.

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