Policy push fails to fuel ONGC show

Despite govt reforms-led oil & gas sector’s growth, ONGC’s under performance has raised concerns. Indian energy sector will play a major role in achieving Prime Minister Modi’s vision of Atmanirbhar and Viksit Bharat. The government has already taken notable positive steps to reduce the country’s dependence on crude oil and gas imports.

Progressive policy reforms like - the New Exploration Licensing Policy (NELP), Hydrocarbon Exploration and Licensing Policy (HELP) with Open Acreage Licensing Policy (OALP), Revenue Sharing Contract (RSC), and Discovered Small Fields (DSF) rounds—have created a favorable environment for exploration and production. These reforms provide liberal fiscal regimes, simplified licensing, marketing freedoms, and incentives for frontier and marginal basins.

Private and foreign players have largely responded to these reforms by investing in new blocks and ramping up production. However, ONGC, the nation’s flagship upstream company, has struggled to translate these opportunities into tangible results. Despite ambitious targets and significant capital expenditure, the company’s production has continuously fallen short over last three years, sources familiar with the development told Bizz Buzz.

Between FY23 and FY25, ONGC and its joint ventures’ crude oil production has declined from 21.4 million tonnes (MMT) to 20.8 MMT, while natural gas output fell from 21.3 billion cubic metres (BCM) to 20.1 BCM. This marks over four per cent production decline in O+OEG terms when company’s capital expenditure had increased more than double from FY23 (Rs30,000 cr) to FY25 (Rs62,000cr). Proven reserves decreased from 542.8 MMtoe to 525.9 MMtoe. Offshore fields, contributing around 70 per cent of crude and 84 per cent of natural gas production, continue to face project delays, slow investment approvals, and monetization lags on decade-old discoveries. The KG‑98/2 deepwater block, for example, is yet to reach its promised peak of 45,000 barrels per day.

ONGC’s financial metrics also reflects operational underperformance. Over the past five years, the company recorded sales growth of just 9.06 per cent, while its return on equity (RoE) remained low at 13.8 per cent over the last three years. Investors have been disappointed. In September 2024, HSBC downgraded ONGC from ‘Hold’ to ‘Reduce,’ citing falling production, operational challenges, and muted growth outlook. The stock dropped approximately 2.5 per cent in response. Credit rating agencies, including Fitch, have also flagged declining production as a constraint to future cash flows. The economic impact of underperformance is broad. Offshore operations support thousands of jobs. Lower activity reduces contracts, employment, and local economic activity. Each barrel not produced domestically adds to India’s crude import bill, straining foreign exchange reserves. In FY24, imports accounted for nearly 87.7 per cent of crude oil demand.

ONGC’s brand, once a symbol of India’s technical expertise and energy sovereignty, is under pressure. Delayed projects, missed targets and technological bottlenecks, undermine its reputation as a national brand.

While government reforms have clearly moved India’s E&P sector forward- encouraging exploration, investment, and diversification into green energy- ONGC has not fully capitalized on these opportunities. To align with the Prime Minister’s vision and support Atmanirbhar Bharat, the company must address internal bottlenecks, accelerate decision-making, fast-track offshore projects, and monetize existing discoveries efficiently.

The reforms have created a roadmap for energy self-reliance. Execution will determine whether ONGC remains India’s upstream leader or continues to lag behind a sector energized by policy innovation and national ambition.