KG Basin And LNG Expansion Will Spur Future Energy Demand

Key Takeaways

• Expansion in production and increased premium-priced gas output will enhance revenue, margins, and earnings while meeting sustained energy demand in emerging markets.
  
• Diversification into petrochemicals and global LNG, alongside efficiency improvements, will stabilize earnings and boost long-term growth, reducing vulnerability to oil price swings.
  
• Falling oil prices, rising costs, capital-intensive assets, project delays, and struggling subsidiaries threaten ONGC's profit stability and future earnings growth.

Catalysts

Engages in the exploration, development, production, and distribution of crude oil and natural gas in India and internationally.

• ONGC's ramp-up in oil and gas production from the KG Basin and upcoming projects (Daman, MH fields, new discoveries) is expected to reverse prior declines and drive volume growth, positioning the company to capitalize on persistent energy demand in Asia and Africa, which should support top-line (revenue) improvement.
  
• ONGC is increasing natural gas output from new wells that receive a premium price over legacy production, and expects new well gas to rise from 13–14% to 24–25% of total gas volumes by next year, directly boosting margins and overall earnings as premium pricing expands.
  
• The company's shift toward higher-value downstream activity via the Opal petrochemicals complex-now EBITDA positive, running at >90% utilization, and expected to improve as the petrochemical cycle recovers and lower-cost ethane feedstock is secured-will diversify revenues and stabilize earnings, reducing sensitivity to crude market volatility.
  
• Ongoing operational efficiency initiatives, cost reductions (manpower, logistics, insurance, transportation), and port/crewboat optimizations are anticipated to lower unit operating costs over the next 6–12 months, strengthening net margins and free cash flow.
  
• ONGC's exposure to LNG and global gas projects (including the potential restart of the Mozambique LNG project as force majeure is lifted) positions the company to benefit from growth in global LNG trade and emerging gas export opportunities, which could provide additional long-term revenue upside.

Oil and Natural Gas Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Oil and Natural Gas's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.5% today to 8.5% in 3 years time.
• Analysts expect earnings to reach ₹586.3 billion (and earnings per share of ₹39.76) by about August 2028, up from ₹360.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹646.0 billion in earnings, and the most bearish expecting ₹408.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.9x on those 2028 earnings, up from 8.3x today. This future PE is lower than the current PE for the IN Oil and Gas industry at 17.3x.
• Analysts expect the number of shares outstanding to grow by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.07%, as per the Simply Wall St company report.

Oil and Natural Gas Future Earnings Per Share Growth

Risks

• Sustained decline in realized crude oil prices-evident from a drop from $83.05 to $66.13 per barrel YoY-directly reduces ONGC's sales revenue and erodes net profits, and reflects the broader trend of potential long-term pricing headwinds amid increased global decarbonization efforts and the risk of peak oil demand.
  
• Operating expenses are rising, with increased contractual payments, LNG purchase costs, and higher depletion/depreciation due to asset additions, which may structurally pressurize net margins if efficiency gains or production increases fail to fully offset these cost escalations.
  
• ONGC's asset portfolio faces higher capital intensity and impairment risk, as seen with increased depreciation and the need to continually invest large CapEx (~₹30,000 crore annually) to combat natural declines in mature fields and ramp up new projects-a dynamic that could be exacerbated by stricter climate regulations or lower-for-longer oil price environments, threatening future earnings stability.
  
• Key production ramp-ups (notably in the KG Basin and new well gas projects) are exposed to project execution delays (e.g., weather-related or logistical issues), which could postpone revenue realization; repeated delays or under-delivery risk casting doubts on long-term output growth and cash flows.
  
• Investments in petrochemical subsidiaries such as Opal remain at risk due to the subsidiary's heavy debt load (~₹24,800 crore), cyclicality in petrochemical pricing, and the need for sustained high utilization; if the upcycle is weak or Opal underperforms, ONGC may be required to inject further capital or face earnings drag, negatively impacting consolidated profitability and returns.

Valuation

• The analysts have a consensus price target of ₹277.724 for Oil and Natural Gas based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹350.0, and the most bearish reporting a price target of just ₹205.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹6915.1 billion, earnings will come to ₹586.3 billion, and it would be trading on a PE ratio of 8.9x, assuming you use a discount rate of 14.1%.
  
• Given the current share price of ₹238.67, the analyst price target of ₹277.72 is 14.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.