India Looks At Creating Oil Giant To Take On Global Rivals

India Looks At Creating Oil Giant To Take On Global Rivals
India plans to form a giant national oil company by combining other state-owned firms, finance minister Arun Jaitley says.


NEW DELHI/MUMBAI, Feb 1 (Reuters) - India plans to create a giant oil company by combining state-owned firms, finance minister Arun Jaitley said on Wednesday, as the world's third largest oil consumer looks to better compete with global majors in acquiring foreign assets.

New Delhi is struggling to raise local oil production and imports about 80 percent of its oil. Prime Minister Narendra Modi in 2015 set a goal of cutting that to 67 percent by 2020.

India is replacing China as the driver of global oil demand growth and the International Energy Agency expects it to account for a quarter of global energy use by 2040.

"We propose 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," Jaitley said in his budget speech.

India has about a dozen state-run oil and gas companies - including Indian Oil Corp, Oil and Natural Gas Corp , Hindustan Petroleum Corp. But alone they do not have the financial power to rival global oil majors in bids for overseas oil assets.

Combining them "will give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for shareholders," Jaitley said.

It was not clear if Jaitley was talking about combining all state-run oil companies or just some of them.

Multiple Majors?

"India has capacity to create not only one, we may create two, three more companies," Oil Minister Dharmendra Pradhan told television channel CNBC-TV18. "It will not be wise to put all eggs in one basket".

He said the government had announced the policy but it would be up to companies to determine the details of any mergers.

He said creation of oil giant would "de-risk" the firm and give it more leverage to go abroad as low oil prices hit revenue of producers and higher prices hurt fuel refiners.

The combined market cap of India's key oil and gas companies -- Oil and Natural Gas Corp, Oil India Ltd, IOC, HPCL, and Bharat Petroleum Corporation Ltd -- is around $106 billion.

While this is less than the top oil companies such as Exxon Mobil Corp., Royal Dutch Shell Plc or Chevron , it still gives India a formidable standing among companies such as Russia's Rosneft with a market cap of around $70 billion or the UK's BP Plc which has a market cap of $115.57 billion.

Bigger Negotiation Power

Oil industry executives welcomed the plan.

"A much bigger entity will give us bigger negotiating power in almost all activities globally such as the purchase of crude, technology, R&D (research and development) expertise...and faster decision making," said D K Sarraf, chairman of ONGC said.

"A merged entity can give the benefit of a sheer size of resources which is so far not available to any of the oil and gas companies individually," said M K Surana, chairman of HPCL.

However, analysts were a little wary as they felt the process could be lengthy and problematic.

"I think the motivation is right but the government has to be very careful in going ahead with the merger as that can take a lot of time in integrating cultures of various companies and the market conditions could also change," said Anish De, partner and head of oil and gas at KPMG in India.

India planned a similar move in 2005 but the proposal was turned down by a government-appointed panel.

"(The) key challenge will be integration issues, especially on the human resources side," said K Ravichandran, group head, corporate sector ratings, at ICRA Ltd.

(Editing by Elaine Hardcastle and Jason Neely)

Copyright 2017 Thomson Reuters. Click for Restrictions.


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Vidyadhar Joshi | Feb. 4, 2017
India already has ONGC has the nations Oil & Gas company. It has spread its wings overseas and is buying assets and doing business overseas as well as in India. There are other big players such as Reliance in this sector. All these are Global players and do have enough power.

sharad mittal | Feb. 4, 2017
Goal is good but implementation is big challenge. If Government is serious about integrated public sector oil major in India, they must open up talent acquisition through open window rather than reshuffling orthodox and biased professional from one PSU to another. Government must make working environment competitive and fix the accountability for every one in black and white.

Krishnan Raghavan | Feb. 3, 2017
The idea of a new entity seems to be great. It should be an independent oil company with no interference from the government or bureaucracy. Top class oil and gas professionals from India and abroad in both exploration and production and management should be involved. Small or medium amount of stake should be taken in both producing and prospective assets and licenses world wide.

Chris Ramsey | Feb. 3, 2017
I worked for ONGC between 1987-91 when Bombay High was a new oilfield. Its nteresting to see how the worlds largest democracy has managed its resources since.

too | Feb. 2, 2017
Too slow too late ... They need Prez Trump like speed and action fold and unfold quickly - just collecting the purse in one place and then streamline - example of the 18,000 Vilages Light !


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