ONGC shares rise, HPCL falls as government mulls ownership transfer to create energy giant

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Published: February 27, 2017 10:39:07 AM

The government has reportedly decided to transfer its entire 51.1% equity stake in HPCL to ONGC, instead of actually merging the two companies. Following the move, ONGC will become the parent company of HPCL.

The government has reportedly decided to transfer its entire 51.1% equity stake in HPCL to ONGC, instead of actually merging the two companies. (Image: Reuters)

Shares of Oil and Natural Gas Corp were trading firm, up over half a percent, while shares of Hindustan Petroleum were weak, down by more than half a percent, on news that the government plans to transfer the ownership of the latter to the former in a bid to create an energy giant of the global scale.

ONGC was up 0.56% at Rs 196.75; HPCL was down 0.53% at Rs 567.95.

Beginning last week, various media reports said that the government was considering merging state-run oil refiners and marketers HPCL and BPCL (Bharat Petroleum Corp) with the state-run oil explorer and producer ONGC.

The latest news report suggests that the government has decided to transfer its entire 51.1% equity stake in HPCL to ONGC, instead of actually merging the two companies. Following the move, ONGC will become the parent company of HPCL.

A vertically integrated oil company would be better able to absorb the fluctuations in the global crude oil prices, as when the exploration unit will suffer from falling prices, the refining unit will benefit, and vice versa.

Earlier this month, Finance Minister Arun Jaitley proposed setting up an integrated oil PSU (public sector undertaking) by merging companies with synergy in order to match the scale of the global oil giants.

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India’s largest oil and gas exploration and production company ONGC said then that the proposed integration of oil PSUs will be a big positive for the sector as an integrated company is well positioned to handle volatility in crude oil prices. Negotiation power of a large oil company is better with its business partners, it had said.

Brokerage firm HDFC Securities has said the upstream and downstream companies can merge to reduce the impact of crude volatility. The newly formed oil major with strong balance sheet can also plan for big ticket global acquisition of oil fields to reduce import dependency, it added. However, HDFC Securities said that it sees limited impact on stocks from this aspect while the details are awaited.

Earlier, Indian Oil Chairman B Ashok said in an interview to Reuters that the behemoth would like to merge the subsidiary Chennai Petro with itself as part of a government plan to integrate state-run oil firms. “Chennai Petroleum will benefit by integrating with IOC,” Ashok said.

Indian Oil, India’s largest refining and marketing company, is the majority owner of Chennai Petroleum with about 52% equity stakeholding in the company. Chennai Petroleum operates two refineries in southern India.

 

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