Nomura Maintains Neutral Rating on Oil India with Target Price of INR 490
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Nomura Maintains Neutral Rating on Oil India with Target Price of INR 490
FY26 production impacted by Assam blockades but reserve replacement ratio improved; future focus on deepwater exploration, natural gas growth, refinery expansion, and steady progress in green energy transition.
- FY26 total production ~6.64 MMTOE, with minor losses due to blockades
- Reserve replacement ratio improved to 1.02x with 8 new discoveries in three years
- Plans to drill ~100 wells annually, first deepwater well to commence mid-2027
- Natural gas production expected to increase from 8 mmscmd to 13-15 mmscmd
- Numaligarh Refinery expansion to 9 mtpa, expected to phase in by FY27
- Mozambique LNG project resumes, gas production expected in 2028/29
- Plans to invest over INR 200 billion in renewable energy by 2040
Report interpretation
Overview
This report summarizes key takeaways from Nomura Securities' analyst meeting with Oil India Limited on May 25, 2026. While FY26 production was slightly impacted by Assam blockades, the company's reserve base remains solid with improved reserve replacement ratio. Future growth drivers include breakthroughs in deepwater exploration, increased natural gas production, midstream pipeline expansion, and doubling of Numaligarh Refinery capacity. The company is actively pursuing green energy transition. Nomura maintains Neutral rating with target price of INR 490.
Core views
Production & Reserves: In FY26, the company drilled 74 wells with total production ~6.64 MMTOE (including 3.45 MMT crude oil and 3.15 BCM natural gas). Assam blockades caused ~0.1 MMT crude oil and ~0.3 BCM natural gas losses, but crude production has recovered to 88,200 bpd as of May 25. 2P reserves ~231 MMT, reserve life ~31 years, reserve replacement ratio improved from 0.94x to 1.02x. Management expects FY27 crude production to reach 4 MMT and natural gas 3.35 BCM. Exploration & Deepwater Strategy: The company is expanding offshore exploration in Andaman, KG Basin, and Kerala-Konkan regions, with confirmed hydrocarbon shows in Andaman Basin. Plans ~100 wells annually (including 40 exploratory wells), first deepwater well to be drilled mid-2027 (~INR 12 billion per well cost). Government's 'Samudra Manthan' initiative will provide funding and seismic data support to reduce deepwater exploration risks, with royalty-free blocks and favorable revenue sharing terms. Natural Gas & Midstream Growth: Current natural gas production ~8 mmscmd, expected to increase to 13-15 mmscmd. Duliajan-Numaligarh pipeline capacity expanded to 2.5 mmscmd, connecting to national grid could increase gas evacuation by 40%. NRL approved as gas reseller to city gas distributors. Refinery Expansion & Green Transition: NRL expansion (from 3 mtpa to 9 mtpa) on track, expected to phase in by FY27, stabilize by FY28. Mozambique LNG project force majeure lifted, construction resumed, production expected in 2028/29. Green energy plans include over INR 200 billion investment in renewables and green hydrogen by 2040, targeting 5GW+ renewable portfolio by 2030.
Analysis framework
Nomura uses Sum-of-the-Parts (SOTP) valuation for Oil India. This method values different business segments (domestic upstream operations, IOC shareholding, NRL refinery stake, etc.) separately with appropriate multiples, then aggregates for total valuation. Suitable for diversified energy companies with varying segment drivers, providing more accurate intrinsic value reflection.
Methodology notes
Sum-of-the-Parts Valuation
Values different business segments (upstream, refineries, investment portfolio) separately using appropriate multiples (PE, EV/EBITDA), then sums up. Suitable for diversified companies to avoid distortion from single multiple.
Oil & Gas Industry Supply-Demand & Reserve Analysis
Evaluates long-term sustainability and growth potential by analyzing production, reserve replacement ratio, new discoveries, and downstream demand (refineries, city gas).
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Oil India (OILI.NS)Direct beneficiary through production growth, cost optimization, and new business development
- Strengths
- Long reserve life, significant natural gas potential, refinery expansion synergies
- Weaknesses
- High-cost/high-risk deepwater exploration, traditional oil & gas business exposed to price volatility
- Comparison
- Integrated advantage vs pure upstream players with midstream/downstream operations
- Risks
- Oil & gas price decline, exploration failures, project delays
Key data
- FY26 Total Production~6.64 MMTOEIncludes 3.45MMT crude oil, 3.15BCM natural gas
- Reserve Replacement Ratio1.02xImproved from 0.94x in FY26
- FY27E Crude Production Guidance~4 MMTManagement expectation
- Deepwater Well Cost~INR 12bnShallow water ~INR 8bn
- NRL Refinery Expansion Target9 mtpaExpanding from 3 mtpa
- Mozambique LNG Committed Investment~USD 1.8bnAdditional USD 0.3bn under approval
Impact & implications
The report indicates Oil India is transitioning from traditional onshore/shallow water producer to deepwater explorer and integrated energy company. Natural gas expansion and refinery integration will enhance cyclical resilience. Government's deepwater exploration support policies reduce high-risk exploration costs. Long-term green energy investments align with global transition trends, supporting long-term valuation.
Risks
- Lower-than-expected oil & gas production
- Higher-than-expected operating costs & depreciation
- Deepwater exploration technical risks
- Mozambique LNG project delays
What to watch
- FY27 crude oil & natural gas production achievement
- First deepwater well drilling progress & results
- Numaligarh Refinery expansion commissioning timeline
- Renewable energy project implementation pace