The proposal was a part of a broader plan to restructure state-run energy firms to create two or three large companies, said the government official, who did not want to be identified.
The government will get revenue from the sale of its majority stake in OIL but the company will continue to be in the public sector, the official said. Oil India Ltd (OIL) is an exploration firm based in Asssam.
Last week, oil minister Mani Shankar Aiyar said the government would consider merging some state-run energy firms to make them more focused and competitive.
He said state-run firms were competing with each other for investments in oil and gas projects abroad and spending heavily to upgrade petrol stations to attract customers, but were less enthusiastic about providing kerosene and cooking gas in rural areas.
Another option being examined is to merge refining giants Hindustan Petroleum Corp Ltd and Bharat Petroleum Corp with the countrys largest exploration firm, Oil and Natural Gas Corp, officials say.
The oil ministry earlier considered merging IOC and Oil India, but the government is concerned that people in Assam may resent the amalgamation of a high-profile local firm with a Delhi-based oil major. If IOC acquires the company, Oil India can retain its identity, the official said.