Bounty for the fisc iffy gain for oil

Bounty for the fisc iffy gain for oil

The Cabinet nod for ONGC to buy out the government stake in the second-largest oil refiner and marketer, HPCL, is a bonanza for disinvestment proceeds but means precious little for the oil sector, especially the crucial exploration and production (E&P) segment. The fact is that ONGC's last major oil find was the mid-sized Neelam field back in the 1980s. Note also that ONGC would need to scrape the bottom of the barrel to fund the buyout, which would be at the expense of much-needed E&P. ONGC's cash reserves add up to a paltry Rs. 13,000 crore, and acquiring 51% stake in HPCL would cost it over Rs. 29,800 crore, as per the latter's share price. Besides, as control is at stake, surely a premium price is warranted for the buyout. But a more realistic valuation of HPCL would only shore up borrowing costs of ONGC and further misallocate resources for E&P, its core area of expertise.
It is true that global oil majors, more often than not, are vertically integrated, with operations both upstream and downstream. It helps to better balance the high risks and uncertainty upstream, with the volumes play in downstream retailing. However, ONGC already has Mangalore Refinery and Petrochemicals (MRPL) as its subsidiary. In any case, global majors duly leverage their large E&P activity to gainfully foray downstream. Unfortunately, ONGC is not similarly placed. Its only major find, Bombay High, in the shallow offshore, is an ageing 50-year-old field where operations would need to be phased out sooner than later. Yet, it is not clear if ONGC has been able to develop expertise for E&P activity in the deeper offshore.
Global oil majors are heavily into renewable energy as well and there is no reason for ONGC to remain a laggard in the area. Merely acquiring HPCL would hardly help.