The submission made by the Kirit Parekh Committee, formed on oil pricing reforms, to the oil ministry, has set the stocks of the oil and gas companies into the positive zone. And, on Thursday, when the benchmark indices were down, most of the companies in the oil & gas sector saw positive movements.

This optimism is based on some of the recommendations made by the committee. Firstly, the committee suggests complete de-regulation of petrol and diesel prices. Given the current global crude prices, analysts reckon that this could result in a hike of Rs 3.9 per litre for petrol and Rs 3.2 per litre for diesel. Chances are there that the price for petrol could be de-regulated first and that the government might take time on the diesel front, as 15% of the total diesel consumption is for agricultural purposes.

And, given the inflationary situation, this would be an even more tough decision to take. Then it aims to increase the kerosene (SKO) prices by Rs 6 per litre and domestic LPG prices by Rs100 a cylinder. This could ease the burden for companies, as the under-recoveries on LPG is about Rs 287 per cylinder and Rs 16.5 per litre for SKO. For the government, if this recommendation is implemented, it would result in reduction in the subsidy burden by around Rs 7,020 crore on SKO and Rs 7,880 crore on the domestic LPG. This, in turn, would result in reduction of under-recoveries by Rs 14,900 crore to Rs 21,600 crore. This is assuming crude stays at around $70 pet barrel. Moreover, the committee has recommended a cap of government-sharing of cooking fuel at Rs 20,000 crore per year. The balance is to be borne by the upstream companies. Thus, they would require to contribute around Rs1,600 crore annually towards the subsidy burden. This is seen as a positive for companies such as ONGC and OIL if oil prices stay in the range of $70-75 per barrel. The committee has not recommended any subsidy burden on GAIL and has been silent in the case of oil marketing companies. So, chances are that they would be spared. In that case, the upside for the shares of these companies is especially high as many of them trade at very low price to book value ratios. It all therefore depends on the government?s will, the inflation numbers and oil prices.