The proposed move to create an integrated public sector ‘oil major’ has gained momentum with state-owned oil explorer Oil and Natural Gas Corporation (ONGC) submitting its final views on the subject to the petroleum ministry.
The entity is expected to match the performance of international and domestic private sector oil and gas companies.
Though ONGC officials remained tight-lipped about their submission to the ministry, sources said that the PSU favours a vertical integration with state-owned oil retailer Hindustan Petroleum Corporation (HPCL), as it will help the company fast track its plans for an entry into oil retailing.
ONGC has been looking at retail sales of petroleum products through its refining subsidiary Mangalore Refinery and Petrochemicals (MRPL), but HPCL with its existing network of about 14,000 retail outlets would give the oil explorer readymade entry into the lucrative segment with MRPL’s products.
“The oil ministry will now discuss the merger plan afresh with companies before a ministerial nod is given defining timeline within which the process would have to be to completed. The exercise will start with the appointment of bankers that could value the companies and decide on share swap arrangement,” said an official source privy to the development. “The process could be slow as all entities in the deal are listed and concerns of all shareholders would have to be addressed to their satisfaction. Merger should not be seen as adversely impacting the interests of minority’s shareholders,” the source added.
The ONGC board would discuss the issue again and formally approve the merger after government’s nod.
“M&As are strategic decisions for ONGC and the talks for acquiring HPCL are at a preliminary stage at present,” confirmed said a government official. It its earlier interactions with oil companies, the oil ministry has indicated its preference for a merger between ONGC & HPCL, as this would add value to the shareholders and strengthen companies.
Together, the two companies would have a combined market capitalisation of over Rs 2.85 lakh crore with presence in the entire oil chain: exploration, production, refining, petrochemicals and retailing. HPCL will add 23.8 m tonnes of annual oil refining capacity to ONGC’s portfolio, making it the third-largest refiner in the country after IOC and Reliance Industries. MRPL already has a 15 million tonnes refinery.
While the process of merger is yet to be finalised, a source said that his could go through with ONGC buying government’s 51.11 per cent stake in HPCL. This would be followed by an open offer to acquire additional 26 per cent from other shareholders of the retailer.
The proposed merger of ONGC & HPCL could only be first among the steps planned by the government towards consolidating operations of oil PSUs to help the world’s third largest oil consumer compete better with global majors in acquiring foreign assets.
The government plan to create an oil sector behemoth could also see not one but even two or more such companies with presence in the entire value chain of the oil business.
The process would involve merging the largest entity in a segment with smaller players in others areas so that two public sector integrated oil companies could be created.
Taking this route, it is felt, would also create entities with sufficient muscle to address the issue of energy security by aggressive buys, while at the same time strike good bargains on better terms for sourcing oil from international markets.
Sources said under this exercise, while the smaller cousin of ONGC may be considered for merger with country’s largest oil refiner and marketing entity IOC, relatively smaller refiners HPCL and BPCL could be merged with the biggest upstream entity ONGC.
Together the two proposed companies would have a market cap of over $80 billion that will rival global oil and gas giants such as BP, Chevron, ExxonMobil, CNPC and would make them larger than Rosneft of Russia and RIL. Both will also be present in the entire value chain like exploration and production, refining and marketing.
