“ONGC should merge with other state-run refiners” -Governance Now

“ONGC should merge with other state-run refiners”

ONGC director says that integration will stabilise company's revenue and will help the company in responding effectively to competition from renewable energy and car innovators

GN Bureau | July 22, 2016

#Tapas Kumar Sengupta #Hindustan Petroleum #Bharat Petroleum #Indian Oil #ONGC merger #ONGC

Tapas Kumar Sengupta, director (offshore), ONGC

Oil and Natural Gas Corporation (ONGC), India's largest oil and gas exploration and production company, should merge with a refining corporation such as Indian Oil, Bharat Petroleum or Hindustan Petroleum to weather price volatility, stabilise its income and stay competitive, a director at the state-run company has suggested.

Tapas Kumar Sengupta, director (offshore), ONGC, told the Economic Times: “As an integrated company, during price fluctuations, ONGC can make up in its refining and petrochemicals business whatever it loses as a crude oil producer. This will help stabilise the company's revenue and profit.”

He further said that major oil firms across the world are better able to deal with the cyclicality of the oil markets because they are integrated.

Though ONGC already has presence in refining and petrochemicals through its units, Mangalore Refinery and Petrochemicals and ONGC Petro additions, Sengupta said that the scale has to be much bigger.

Oil prices have tumbled to $46 a barrel from $114 in June 2014. In the past two years, profits have crumbled for oil and gas producers globally, while downstream companies mostly gained as input became cheaper, working capital needs shrunk and not much fresh refining capacity was added.

In 2015-16, the profit of state oil producers – ONGC and Oil India Ltd – fell 10 percent and 7 percent respectively, while the combined profit of three state refiners and fuel retailers – Indian Oil, Hindustan Petroleum and Bharat Petroleum – climbed two thirds. He said an integrated ONGC will also be more tax-efficient, as it will help the company in responding more effectively to competition from renewable energy and car innovators such as Tesla that threaten to take over a large chunk of the global transportation business in future.

ONGC too has a small presence in wind power business but it can do more in alternative energy, he said. In order to keep local output of oil strong, ONGC and the country will have to continue to be laser focused on finding new fields and enhancing production amid declining output from the currently producing but ageing fields, he said.

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