Andrew Wong, Credit Analyst at Standard & Poor’s expects ONGC’s EBITDA to improve by at least $2.0 billion each year on average from fiscal 2014-15 once India implements natural gas price increase.
Therefore, the state-run energy explorer may strengthen its cash flow and profitability from the next fiscal year, exceeding the earlier expectations, he said.
But the rating agency maintained its ‘BBB-‘ rating and negative outlook on Oil and Natural Gas Corp (ONGC).
The view is based on the recent government decision to raise domestic natural gas prices to $8.4 per million British thermal units (mmbtu) from $4.2 per mmbtu, effective April 2014.
Standard & Poor’s bases its EBITDA forecast on its current assumptions for oil and gas production, oil prices, and ONGC’s contribution to the government’s oil subsidies.
The agency feels that ONGC’s acquisition investments over 2014-2016 could be lower than it originally forecast.
The company expects lower acquisition based on ONGC’s failure to acquire a $5 billion investment in the Kashagan Field in Kazakhstan, which S&P previously included in its forecasts.
ONGC could not acquire the asset because the Kazakhstan government used its pre-emption right to acquire ConocoPhillips’ 8.4 percent stake in the field. Despite this, S&P still anticipate that ONGC’s investment requirements will remain high.
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