Fitch Ratings Thursday gave a stamp of approval to Oil and Natural Gas Corporation Limited by keeping its rating at ‘BBB-‘ with stable Outlook. This rating shows that ONGC is considered to have a moderate level of creditworthiness. The businesses rating also said that the future outlook for ONGC is stable.
“ONGC’s ratings are constrained by the ratings of the state of India (BBB-/Stable), its majority owner,” the rating agency said.
Maintaining ONGC’s Standalone Credit Profile (SCP) at ‘bbb+’, Fitch recognises ONGC’s status as India’s largest oil and gas producer, boasting significant reserves, and geographically diversified business model.
“We maintain ONGC’s Standalone Credit Profile (SCP) at ‘bbb+’, which reflects ONGC’s scale as the largest oil and gas (O&G) producer in India, its significant reserves and production, and its vertically integrated and geographically diversified business model, which are comparable with that of peers rated in the ‘A’ category by Fitch,” Fitch said in a statement.
The SCP also considers Fitch’s expectations that ONGC’s credit metrics will improve over the financial years ending March 2024 (FY24) to FY27.
ONGC’s credit strength, however, is counterbalanced by its long track record of declining domestic oil and gas production, which we expect to reverse over the next few years, though there is less certainty on its ability to sustain organic production growth through the cycle in the longer term.
“We believe ONGC’s status, ownership and control by the sovereign is ‘Strong’ due to the state’s majority ownership and board appointments.”
“ONGC receives subsidies and other government grants, although these are limited, given its strong credit profile. We expect the state to extend support to ONGC, if needed, due to its importance in India’s energy security as the largest national upstream company and third-largest refiner and marketer of petroleum products. ONGC has also received indirect state support for its overseas upstream acquisitions, ” Fitch said
Fitch said, “it expect ONGC’s domestic oil and gas production to increase by low single-digit percentages over FY24- FY27. This will be supported by ramp-up at its KG-DWN-98/2 deep-water offshore field, and efforts to arrest output declines at mature oil fields. ONGC’s oil production over FY11-FY23 fell by a compounded annual rate of 2% and that for gas declined by 1%, which we believe is not consistent with that of higher rated peers.”
The agency said, “it expect ONGC’s consolidated capex to rise to ₹603 billion by FY27 from ₹490 billion in FY23 as its core capex remains high and green investments increase. This includes ₹300 billion-325 billion of domestic upstream capex to accelerate development and exploratory drilling, for capital projects, and for completion of the KG-DWN-98/2 project on India’s eastern coast, and around ₹200 billion of annual capex at ONGC’s various subsidiaries.
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Updated: 31 Aug 2023, 09:26 PM IST