New Delhi: India's largest oil and gas producer has officially acknowledged that it cannot meet its full-year production targets. Oil and Natural Gas Corporation Limited (ONGC) has revised downward its crude oil production guidance for FY26 to approximately 20 million metric tonnes from the original 21 MMT target, while natural gas guidance has been trimmed to around 20 billion cubic metres from 21.5 BCM.
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The shortfall is starkly visible in first-half numbers. ONGC produced 9.314 MMT of crude oil in H1 FY26, registering growth of just 1.2 percent year-over-year, while gas production of 4.918 BCM remained flat compared to the prior year. At these run rates, the company is tracking for production levels that fall materially short of full-year targets, raising critical questions about India's ability to reduce energy import dependence.
"Currently, we are having 28,000 barrels of oil per day, and that is what is actually affecting our production estimates for this year," said Vivek Tongaonkar, Director (Finance) at ONGC, during a recent earnings call. The company expects to "approach 20 million metric tons for crude oil," with the director acknowledging the company has "had certain little bit downside from what we were expecting".
The bottleneck is ONGC's flagship deep-water development in the KG-DWN-98/2 (Cluster-2) project in the Bay of Bengal. Oil production from this USD 5+ billion project has actually declined to 28,000 barrels per day from 30,000 bopd in the prior quarter, while gas output languishes at just 3 million standard cubic meters per day against a design capacity of 10 mmscmd. The culprit: delayed installation of living quarters containing critical compressor packages required to unlock full production potential.
"For KG-982, we are to install the living quarters. Once those get installed at offshore during coming December-January, we expect that the gas production would get ramped up at 982 by end of the last quarter of this year," said Tongaonkar. The delay is expected to push some production that would normally come in the current year into FY27, as monsoon season complications further complicate offshore installation schedules.
This production miss has direct implications for India's energy security. At the current trajectory, India's import dependence has been on the rise, with domestic production insufficient to meet growing demand from manufacturing, transport, and power generation sectors.
As core oil and gas production stumbles, ONGC has identified a critical silver lining: newly discovered gas wells that command premium pricing, effectively compensating for production challenges in conventional fields.
Revenue from new well gas reached Rs 3,352 crore in the first half of FY26, delivering an additional Rs 651 crore in incremental revenue compared to what would have been earned under the administered pricing mechanism (APM) for domestic gas. "This gas from the new wells is eligible for a 20 premium over the domestic APM gas price," explained Tongaonkar in the earnings presentation. At current oil prices, this premium gas fetches USD 8.36 per million British thermal units versus USD 6.75 for conventionally priced gas, a 24 percent price advantage.
What makes this revenue stream particularly significant is its rapidly growing share of total gas revenue. "The share of new well gas surpassed 21 percent of total gas revenue from nomination fields during the period, reflecting its rising importance in ONGC's gas portfolio," the company noted in its presentation. It must be noted that at just 14 percent of production volume, new well gas is generating 21 percent of total gas revenue, demonstrating the pricing power embedded in these fields.
This expansion is expected to accelerate significantly. When asked about the trajectory of new well gas, Chief Corporate Planning executive Ajay Kumar Singh stated: "We are expected to add by 5 MMSCMD of gas" from the Daman Upside project in the current year, "and next year... we are going to commission the DSF-II, which will be adding another 4 MMSCMD. So both put together, 9 MMSCMD is the addition".
"So, you can see that near about 30 to 35 of our entire production will come from the new well gas," Singh projected. One analyst queried whether this implied new well gas could account for "one-third of the gas" within four years, to which Prakash Joshi, head of Investor Relations, clarified the timeline could be even more accelerated: "That 35-40 is saying four years, I don't think so. It would come earlier to that".
As part of its diversification plan, ONGC is preparing a major renewable energy expansion, committing substantial capital to reach 10 gigawatts of renewable capacity by 2030 while simultaneously managing its core hydrocarbon portfolio.
When asked about renewable energy capital expenditure, Chief of Business Development Satish Kumar Dwivedi disclosed: "We have already invested for the acquisition of RE assets worth Rs 5,000 crore. And we are in the process of awarding a job again for amount of Rs 5,000 crore for building our own asset." Director Finance Vivek Tongaonkar confirmed the broader strategy: "In a gist, what we are doing is we have planned for about 10 gigawatts by 2030."
When pressed on whether this renewable energy capital was incremental to ONGC's core E&P budget of Rs 30,000-33,000 crore annually, Tongaonkar stated: "Could be additional to that."
The renewable investments have already begun execution. Beyond the Rs 5,000 crore in acquisitions and Rs 5,000 crore for new asset construction, the company is deploying renewable power directly into operations. In response to questions about cost optimisation, Tongaonkar disclosed: "We are looking at reducing our power cost also by considering green gas from the grid as well. And in the long run, we plan to set up our own green solar and wind power plants, which should come up in the next 18 months to two years, which would cut down on the power cost that we would be utilising."
ONGC's production recovery narrative hinges critically on two major project milestones: the Daman Upside Development Project expected to commence production in Q4 FY26, and the DSF-II (Discovered Small Fields) initiative that will add substantial gas capacity starting FY27. Together, these projects are projected to increase gas production by 9 million standard cubic meters per day, approximately 45 percent above current output.
On Daman, management signaled accelerating timelines. Tongaonkar stated: "Then, we have also mentioned Daman upside project, it is running ahead of schedule. We expect that in the last quarter of this year, we should have production coming out of that field also."
Singh confirmed the magnitude of the addition: "For the next four to five years, when we are introducing our Daman upside, which is likely to come in this current year, we are expected to add by 5 MMSCMD of gas in this year. And next year we are going to commission the DSF-II, which will be adding another 4 MMSCMD."
However, management cautioned that ramping to 5 mmscmd immediately upon startup should not be assumed. When pressed on whether analysts could expect 5 mmscmd to come online immediately, Tongaonkar responded: "Whether it will hit 5 MMSCMD immediately on the first day, no. I can't say that. But yes, it will ramp up, certainly."
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The DSF-II project carries a longer timeline. On the commissioning schedule, investor relations head Prakash Joshi stated: "So, our standalone production, for the current year, oil, we expect 19.8 MMT, and for next year, it is 21 MMT. And as far as gas is concerned, it is 20 BCM for the current year, and it is 21.5 BCM for the next year. And thereafter, it would be in the same lines that we would come up with a figure once some of our projects, as sir already told, would be reaching their peak production."
