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India Has A Plan To Create A New Oil Major

India’s state-run Oil and Natural Gas Corporation (ONGC) will take majority control of Hindustan Petroleum Corp (HPCL) as part of the government’s plan to merge some state-held companies to create an oil major capable of competing with Big Oil, India’s Economic Times reported on Monday, quoting senior government officials.

The government will soon issue a note on the ONGC- HPCL deal in which the cabinet will transfer its 51.11 percent interest in HPCL to ONGC, one of the officials told Economic Times.

On February 1, India’s Minister for Finance and Corporate Affairs, Shri Arun Jaitley, said in the presentation of the 2017/18 budget in Parliament that the country was planning to create an integrated public-sector oil major to match the performance of huge international private sector oil and gas companies. The government sees possibilities of strengthening the Central Public Sector Enterprises (CPSEs) via consolidation, mergers and acquisitions, the minister noted.

Under the plan for the ONGC- HPCL integration, the exploration business of ONGC would be integrated with HPCL’s refining and distribution capabilities, Economic Times reports. HPCL owns India’s biggest lubricants unit and the second-largest pipeline network of more than 3,000 kilometers (1,864 miles). The earnings of the vertically integrated ONGC- HPCL would be more stable, and investors would benefit from the reduced volatility.

The world over, the largest and most successful oil companies like Shell, BP and Exxon, are vertically integrated,” one official told Economic Times.

Related: Have The Majors Given Up On Canada’s Oil Sands?

India has 13 state-controlled oil companies, the biggest being ONGC. Most of the other firms are relatively small, but if the government were to decide to integrate the top eight companies into one big firm, it would create a conglomerate with a market capitalization of just above US$100 billion, which would be close to BP’s capitalization of around US$116 billion, according to the Financial Times.

Last week, ONGC approved investments of US$1.1 billion (73.27 billion rupees) to develop five oil and gas projects that would raise India’s oil and gas production as the country plans to reduce oil imports.

By Tsvetana Paraskova for Oilprice.com

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