Fitch Ratings approved Oil and Natural Gas Corporation Limited on Thursday, leaving its rating unchanged at BBB- with a stable outlook. This rating shows that ONGC’s credit rating is medium. The company’s rating also said that the future prospects for ONGC are stable.

“ONGC’s ratings are constrained by the ratings of the State of India (BBB-/Stable), its majority owner,” the rating agency said.

By maintaining ONGC’s Standalone Credit Profile (SCP) at bbb+, Fitch recognizes ONGC’s status as India’s largest oil and gas producer, with significant reserves and a geographically diversified business model.

“We maintain ONGC’s Standalone Credit Profile (SCP) at ‘bbb+’, reflecting ONGC’s size as the largest oil and gas (O&G) producer in India, its significant reserves and production, and its vertically integrated and geographically diversified business model, which is comparable with those of competitors rated in the “A” category by Fitch,” Fitch said in a statement.

The SCP also reflects Fitch’s expectations that ONGC’s credit metrics will improve in the fiscal years ended March 2024 (FY24) through FY27.

However, ONGC’s credit strength is offset by its long track record of declining domestic oil and gas production, which we think will reverse over the next few years, although there is less certainty about the company’s ability to sustain organic production growth beyond the to be maintained throughout the cycle in the longer term.

“We believe ONGC’s status, ownership and sovereign control is ‘strong’ due to majority state ownership and appointment of board members.”

“ONGC receives subsidies and other government grants, but these are limited due to its good credit profile. We expect the State to provide support to ONGC as needed as the company is important to India’s energy security as the largest national upstream company and the third largest refiner and marketer of petroleum products. “ONGC has also received indirect government support for its upstream overseas acquisitions,” Fitch said

Fitch said, “ONGC’s domestic oil and gas production is expected to grow by low single-digit percentages in FY24-27.” This is supported by the expansion of the KG-DWN-98/2 deepwater offshore field and by efforts to reverse production declines in mature oil fields. ONGC’s oil production declined at a compound annual rate of 2% in fiscal 2011-23 and gas production declined 1%, which we believe is inconsistent with the production of higher-valued competitors.”

The agency said: “It expects ONGC’s consolidated capital expenditures to increase ₹603 billion by FY27 from ₹$490 billion in FY23 as core investment remains high and green investment increases. This contains ₹300-325 billion upstream domestic investment to accelerate development and exploration drilling, capital projects and completion of the KG-DWN-98/2 project in and around the East Coast of India ₹200 billion annual capital expenditures across ONGC’s various subsidiaries.