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OIL India – going strong

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OIL India – going strong

Q2FY12 crude oil & natural gas production were record highs for the company.

Crude oil production rate has been increasing continuously and OIL is presently producing crude at a rate of 3.96 MMTPA (FY12 MoU target: 3.76 MMT). This is noteworthy as most of its production is coming from aging fields in the North East. There has been a steady growth in oil production since the last 3 years through induction of new technologies and accelerated exploration and drilling campaign. Q2 FY12 production rate is even higher than the FY13 MoU target of 3.91 MMT.

Gas production is set to increase at CAGR of 7.1% from FY11-13 driven by steady production from its NE & Rajasthan fields and monetization of contingent reserves. Gas supply to Numaligarh Refinery Ltd (NRL) would also be ramped up to 1 mmscmd. Revision in APM & non-APM gas prices after FY14 is expected to provide another jump to gas sales going forward.

We assume 39% of the gross subsidy burden to be borne by the upstream sector in perpetuity. Taking into account the fact that the upstream sector has shared 33% of the subsidy burden in H1 FY12, we expect the upstream sector to share 51% of the total under recoveries for H2 FY12. However, we expect OIL to post FY12 net realization of $ 67/bbl.

Oil India will also be holding a Board Meeting on Dec 20, 2011 to consider the declaration of Interim Dividend for FY12. As the company is holding a cash balance of Rs 136 bn as of Sept 2011 which translates into a whopping Rs 565/share, we expect a big dividend which will act as a trigger for the stock price.

We maintain our BUY rating with a target price of Rs 1,526.

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Written by Fundamental Side

December 16, 2011 at 12:41 pm

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