State-run oil firm to take on global majors


If the six major energy companies are integrated, the combined entity will have a market capitalisation of Rs. 6,82,145 cr.

Finance Minister in his Budget proposed to create an integrated public sector ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas companies.

Globally, firms like Exxon Mobil, Royal Dutch Shell and BP Plc have integrated operations across upstream, and downstream unlike India, where ONGC, OIL and GAIL are concentrated in upstream while HPCL, BPCL and Indian Oil are focussed on downstream operations of refining and marketing.

Welcoming the budget proposal, Oil minister Dharmendra Pradhan said: “Creation of an integrated public sector ‘oil major’ (will) integrate the oil sector PSUs across the value chain and enhance capacity of Oil PSUs to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders.”

If upstream oil firms like ONGC, OIL, and GAIL are to be integrated it will have a combined market capitalisation of Rs. 3,45,033 crore, revenues of Rs. 1,39,967 crore and profits of Rs. 20,633 crore.

Similarly, if downstream energy firms like IOCL, HPCL and BPCL comes together, it will have combined market capitalisation of Rs. 3,37,112 crore, revenues of Rs. 7,19,477 crore and profits of Rs. 21,649 crore.

If all the six major upstream and downstream energy firms are to be integrated, the combined entity will have a market capitalisation of Rs. 6,82,145 crore ($97.4 billion), revenues of Rs. 8,59,444 crore ($122.7 billion) and profits of Rs. 42,327 crore ($6 billion), overtaking many of the global peers and by far India’s most valued and profitable firm.

“Proposal is to restructure these companies to match the global companies in terms of its financial heft,” said Vedamoorthy Namasivayam, Partner, Deloitte India. “Such a restructuring will not only help to enhance their value of stock in the market, it will also help them to mobilize future financial resources for their expansion and growth. Many of the large national oil companies from other major countries are today listed in other global stock markets.

“Recently Saudi Aramco announced its plan for gradual listing to pave way for internationalization of Saudi economy. We need to wait for the detailed road map of the proposed restructuring to understand the fuller implications,” he said.

The real challenge will be in terms of alignment of internal structure, staff and systems to get the necessary real synergy out of such consolidation, he added.

Among upstream oil firms, shares of ONGC declined marginally to Rs. 200 while shares of OIL rose marginally to Rs. 331.5. GAIL shares gained 3.7% to Rs. 484.75.

Manish Aggarwal, partner and head of energy and natural resources at KPMG said that overall intent for the energy sector has been progressive and transformational, especially in few key aspects.

“Oil imports constitute a lion’s share of India’s overall imports and the proposed creation of an ‘Integrated Oil Sector Major’ creates that fire-power for India to own and invest in a stable oil supply chain. Budget further enhanced scope of strategic oil storages by announcing creation of another 2 facilities targeting a cumulative capacity of 15.33 MMT,” he said.

Among downstream oil firms, BPCL shares rose 1.72% to Rs. 692.95, shares of HPCL increased by 3% to Rs. 537.55 while shares of IOCL gained 2.55% to Rs. 375.4.

Hemal Zobalia, Partner, Deloitte Haskins & Sells LLP said that the oil and gas sector would witness major reforms with the creation of an oil major which will help India to withstand global competition.

The move to integrate oil firms comes in the backdrop of concerns articulated over rising oil prices that may present a challenge to the country’s growth prospects. “The proposal to create an integrated PSU oil major is seen as a positive for MNC EPC majors such as Black & Veatch as it would offer us opportunities to offer our portfolio of services in the oil and gas domain delivered with local expertise.” said Anand Pattani, MD Black & Veatch India.