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The Union Ministry of Petroleum and Natural Gas (MoP&NG) is initiating strategic disinvestment of its Central Public Sector Enterprises (CPSEs). They have zeroed in on Bharat Petroleum Corporation (BPCL). The MoP&NG, in a recent press release proposed “to divest its 100% shareholding in the CPSE (which is BPCL in this case) in favour of strategic partner along with transfer of management control. For this purpose, Government of India(GoI) proposes to engage an asset valuer to carry out a diligent and fair valuation of the CPSE for the limited purpose of its disinvestment.”

The ministry also invited companies who fulfill the conditions prescribed in the eligibility criteria to submit valid interests for this partnership. This move has specified the central government’s plan to sell shares of BPCL to private players. With a total of 35 million tonnes (MT) attributable refining capacity and 15,078 fuel stations, the BPCL posted a 13% fall in its consolidated profit in the last fiscal and could only reach the figure of Rs 8,528 crore. The dipping profit margin is being stated as the reason for this transfer. 

In a decision taken on September 30, the government has allowed for a 53.29% stake for the proposed private partner at the value of Rs 60,000 crore. The private company will also have to unbox an additional Rs 30,000 crore for another 25% from the public in a mandatory open offer. The government  plans to approach top multinational firms including Exxon Mobil, Chevron and ConocoPhillips (from the US), Royal Dutch Shell and BP plc (from the UK), Rosneft and LukOil (Russia), Petro China, CNPC and Sinopec (China), Total SA (France) and Saudi Aramco for this partnership. The smooth completion of this transition may extend this privatisation drive to other similar CPSEs. The Hindustan Petroleum Corporation (HPCL) may be next in line. The subsidiary of Oil and Natural Gas Corporation (ONGC) has not been able to make significant gains. The ONGC’s inability to stream benefits from HPCL after its acquisition can be another reason. Dharmendra Pradhan, Minister, MoP&NG stated, “These are market decisions. They are autonomous companies. They are free to take their own decision at an appropriate time.”

Pallab Bhattacharya, Chief, Corporate Communications, ONGC, cautioned, “Stories regarding HPCL’s share selling are floating in the market because of some speculations or may be based on some recent statements. But we are not confirming this as of now.”

HPCL’s performance

The market valuation of HPCL stands at around Rs 47,000 crore. The net profit of the company fell by 7.3% to reach Rs 7,218 crore in the last fiscal. The company recorded a Profit after Tax (PAT) of `6,029 crore on standalone basis for the 2018-19 fiscal as compared to PAT of Rs 6,357 crore during the previous fiscal. The company recorded PAT of Rs 811 crore during April-June quarter of 2019 as against Rs 1,719 crore during the corresponding period of the previous fiscal. The shrinkage in profit is due to sharp decline in global crude prices in 2019 leading to inventory losses. 

Where ONGC stands

Crude oil production by ONGC during August, 2019 was 1716.89 TMT, 4.81% lower than the target and 3.73% lower compared with its product in August, 2018. Cumulative crude oil production by ONGC during April-August, 2019 was 8584.63 TMT which was also 4.24% lower than the target for that period.

To enhance their production level and profitability, the ONGC has recently lifted bids for private companies to partner with them for technological enhancement of 64 small oil and gas fields. Shashi Shanker, CEO, ONGC recently told the media, “We expect to wind up the bidding process by December 20 this year and contracts are likely to be in place by March 2020.”

Bhattacharya told BE, “Sixty-four marginal fields will remain with us with 100% ownership. But we are mainly looking for technology-partners, who can accelerate the base level production for us. A percentage of the excess production will only go to them. 23 companies, as on September 17, have participated in the pre-bid conference. However, the percentage share for our private partners will depend on the production.”

ONGC has signed a Memorandum of Understanding (MoU) with Exxon Mobil to co-operate in technological exploration and production. Shanker recently told media, “This meaningful partnership with Exxon Mobil will be a step towards unlocking value in ONGC Petroleum Exploration Licence (PEL) offshore blocks, study open acreage areas and enable us to get closer to meeting the country’s energy aspirations.”

With the government pushing BPCL into the private domain and HPCL likely to follow and ONGC tinkering with private collaborations, the oil and gas sector in India may see high private participation.