Due to my upstream industry background I have been close to ONGC (my ex-employer too) and Oil India for many years and have good visibility into their operations. They continue to face challenges and are operationally very weak, lagging in metrics such as reserves replacement, cost of barrel etc. Cairn India (Vedanta) and Reliance are far ahead of them.
Having interacted with quite a few market experts in the last few years I get a feeling that many don’t really understand this business which is driven by geology.
India as a country lacks sufficient oil reserves within the landmass and last 40-50 years of exploration efforts have already proven that .
So Oil India and ONGC continue to invest capital in improving recovery from their existing fields but then they have also reached a point of diminishing returns (you have only limited hydrocarbon deposits which will last for a certain time period). OIL hasn’t found any major discovery in so many years which is key to reserves replacement. ONGC has discovered gas fields in the recent times but their major revenue comes from oil sales where again they haven’t discovered big fields in many years.
As for the stock price rises, I will probably link this to euphoria currently surrounding PSU sectors where narrative has pushed up their crazy valuations. RVNL, a company that used to trade at 7 p/e today trades at 70 p/e. Those who have invested in these counters will justify these valuations citing orderbook and they may be right.
When stocks of highly professional and efficiently run oil and gas companies (with better technology, access to capital and resources) globally languish this excitement about prospects of ONGC and OIL is both baffling and amusing.
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