Oil India Surpasses ONGC in Production Growth Amid Market Shifts

Shares of Oil India have shown resilience compared to Oil & Natural Gas Corp (ONGC) in recent months, despite rising crude oil prices since the onset of the West Asia conflict. While crude prices have surged approximately 35% above pre-war levels, ONGC’s stock has declined by 16%, in contrast to Oil India’s relatively modest 2% fall during the same period.

Examining the last quarter, ONGC’s shares fell 2% over three months, whereas Oil India’s shares rose by 13%, highlighting a divergence between the two major state-owned oil producers. Both companies face similar royalty frameworks and price realizations linked to crude import prices, yet their market performance has differed notably.

India’s average imported crude price in the second quarter of fiscal year 2027 stood near $96 per barrel, slightly down from $101 in the first quarter but still 37% higher than the previous year. This pricing environment has positively impacted earnings for both firms. In the first quarter, ONGC and Oil India reported robust standalone earnings before interest, taxes, depreciation, and amortization (EBITDA), excluding exploratory well cost write-offs, rising 67% and 110% year-over-year to ₹29,250 crore and ₹4,300 crore respectively.

Production growth has emerged as a key differentiator between these companies. Research from Kotak Institutional Equities projects Oil India’s total oil and gas sales volume to increase by 13.8% in fiscal 2027, reaching 6.5 million tonnes of oil equivalent (mtoe). ONGC’s growth forecast is more modest at 2.4%, reaching 42 mtoe. Recent data from JM Financial Institutional Securities show Oil India’s crude oil output grew 18% in the first two months of the second quarter, while ONGC’s production declined by 3%. This follows a pattern from the first quarter where Oil India expanded production by 12%, and ONGC’s output fell 3%.

The production volume advantage has drawn increased investor interest in Oil India, particularly within the midcap segment, while ONGC has faced a lack of catalysts attracting large-cap investors. However, ONGC maintains a longer-term edge with significantly larger proven reserves. Kotak’s estimates place ONGC’s 1P crude oil reserves at 13.6 times its fiscal 2026 production, compared with 8.3 times for Oil India. These 1P reserves represent oil volumes with at least a 90% commercial recoverability probability.

Projections indicate that sales volume growth rates for both companies will converge by fiscal 2028, with Oil India expected to grow at 5% and ONGC at 4.6%, suggesting Oil India’s current advantage may be temporary.

Beyond company-specific factors, both firms stand to benefit from government initiatives aimed at revitalizing offshore exploration. The Samudra Manthan program allocates ₹84,100 crore in support to oil exploration enterprises for offshore seismic data collection and exploratory drilling through fiscal 2031. Offshore drilling in India has lagged behind onshore activity due to higher costs, with offshore wells costing up to $50 million each and deepwater wells reaching as high as $150 million, compared to a maximum of $25 million per onshore well.

This governmental push could alter the landscape for both ONGC and Oil India by expanding exploration opportunities and potential reserves. Currently, Oil India trades at a price-to-earnings ratio of 7.8 based on Bloomberg’s fiscal 2027 consensus estimates, higher than ONGC’s 5.7 multiple. With crude prices anticipated to ease over the medium term, sustaining production growth will be critical for Oil India to justify its premium valuation.

These developments reflect broader trends in the Indian oil and gas sector, which is balancing rising global energy prices with domestic production challenges. Both ONGC and Oil India play pivotal roles in meeting India’s energy demands, and their strategies and performance will be closely watched by investors and policymakers alike as the market evolves.

About the Author
Ashish Agrawal has contributed to Mint for over two years, focusing on the 'Mark to Market' column. He holds an MBA from IIM Calcutta with specializations in finance and operations. His previous roles include work with The Economic Times and JSW Steel. Ashish brings more than 15 years of experience in stock market research and sector analysis, covering metals, mining, oil and gas, power, and capital goods. He has a particular interest in infrastructure sectors and is the author of 'Indian Economy & Business: Overview of Recent Trends & Events'.