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Oil and Natural Gas Corporation Neutral
ONGC.BO, ONGC IN
Reserves update - no significant changes
• ONGC updates reserves estimates: ONGC carried out an independent
reserves audit, raising 3P estimates by 18% over Mar '10, while 2P
reserves remained flat, with 1P reserves coming down 12%.
• Shift of reserves from 1P to 3P: The auditors have effectively shifted
reserves from 1P to 3P, mainly due to a delay in implementation of
planned field development activities.
• Differences in domestic reserves: ONGC’s estimates of domestic
reserves vary from auditors on 2 counts (1) Mumbai High – the auditor
(GCA) considered a more aggressive water injection and other field
enhancement plans, arriving at a higher estimate and (2) The auditor
(D&M) took into account the delay in implementation of field
enhancement and development plans in Assam, shifting reserves to 3P.
• Overseas estimates vary: ONGC’s own estimates of overseas reserves
vary from those of the auditors, primarily due to differences over
Sakhalin estimates – the auditors have higher 3P reserves, as they
adhered to SPE benchmarks, while the consortium uses Russian
standards. The auditors also did not consider potential future sales
contracts.
• Subsidy issues still remain – focus will remain on production growth:
We expect the market to continue to focus on near/medium term
production growth as against reserves - we build in a 9% production
growth over FY11-13E. Crude has remained elevated, with Brent
averaging over $100/bbl in February. As such, subsidies are likely to be
higher than earlier anticipated, and we believe any change in the 33%
upstream share subsidy formula could negatively impact earnings.
Maintain our Neutral rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
Oil and Natural Gas Corporation Neutral
ONGC.BO, ONGC IN
Reserves update - no significant changes
• ONGC updates reserves estimates: ONGC carried out an independent
reserves audit, raising 3P estimates by 18% over Mar '10, while 2P
reserves remained flat, with 1P reserves coming down 12%.
• Shift of reserves from 1P to 3P: The auditors have effectively shifted
reserves from 1P to 3P, mainly due to a delay in implementation of
planned field development activities.
• Differences in domestic reserves: ONGC’s estimates of domestic
reserves vary from auditors on 2 counts (1) Mumbai High – the auditor
(GCA) considered a more aggressive water injection and other field
enhancement plans, arriving at a higher estimate and (2) The auditor
(D&M) took into account the delay in implementation of field
enhancement and development plans in Assam, shifting reserves to 3P.
• Overseas estimates vary: ONGC’s own estimates of overseas reserves
vary from those of the auditors, primarily due to differences over
Sakhalin estimates – the auditors have higher 3P reserves, as they
adhered to SPE benchmarks, while the consortium uses Russian
standards. The auditors also did not consider potential future sales
contracts.
• Subsidy issues still remain – focus will remain on production growth:
We expect the market to continue to focus on near/medium term
production growth as against reserves - we build in a 9% production
growth over FY11-13E. Crude has remained elevated, with Brent
averaging over $100/bbl in February. As such, subsidies are likely to be
higher than earlier anticipated, and we believe any change in the 33%
upstream share subsidy formula could negatively impact earnings.
Maintain our Neutral rating.
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