Questionnaire : Oil & Gas

1. How will we differentiate between private and Govt. upstream companies and which one is better and why?

In India, retail fuel prices are regulated by Govt. If the crude oil prices are high, Oil Marketing Companies (OMCs) bear under recoveries on sale of fuel at lower prices. As per Govt., public upstream companies has to bear a part of subsidies losses of OMCs, whereas private companies like RIL, Cairn don?t have obligation from Govt. to share subsidy losses of downstream companies.

I find private upstream companies better, as they are not obliged to share under recoveries and can sell their crude oil at the same prices as public upstream companies (discount to Brent), domestically.

2. What is the subsidy sharing model between the following?

a- Upstream and downstream companies (quantify)

b- What will happen when the crude prices will go up and vice versa( Quantify)

a- As of now, there is no transparent subsidy sharing mechanism, proposed by Govt. But generally, the practice in the industry is as follows:

33% of total under recoveries to OMC:?? Shared by upstream companies (ONGC, GAIL, OIL in the ratio of 75:15:10)

33% of total under recoveries to OMC:?? Shared by Govt. (Cash subsidy/Oil bonds)

33% of total under recoveries to OMC:?? Shared by downstream companies itself (BPCL, HPCL, IOCL)

b- If crude oil prices goes up, that means, the raw material cost (i.e. crude oil) for downstream companies will go up. The OMCs has to sell the fuel at Govt. governed prices, irrespective of their cost. Thus, they bear loss.

On the other hand if crude oil prices get down, better for OMCs as their input cost also get lower.

3. What is proposed in Kritik Pareikh report for the upstream and downstream companies (Quantify)?

4. Peer comparison between the companies like Oil India, Cairn India, ONGC, HOEC related with the total reserves of oil and gas.

ONGC is the largest public upstream company on the basis of 2P reserve. At present, Cairn is not fully operational but commencement of Mangala field makes it attractive. If we look at the reserve and total assets, HOEC seems bit expansive to its peers.

OIL is better in terms of reserve and production growth in the past with a high success ratio of 70-80% of exploratory wells drilled as compared with 36% for ONGC and 34 % for global average, which is best in the world.

In terms of raising cost including taxes, OIL and Cairn enjoy benefit of being onshore players. They have total raising cost of around $11/barrel.