India plans synergies between oil companies through equity cross holding

KOLKATA (miningweekly.com) – India’s second largest oil and gas exploration and production (E&P) company, State-run Oil India Limited (OIL), will pick up a majority stake in standalone oil refinery, Numaligarh Refineries Limited (NRL).

The consolidation of operations of OIL and State-run NRL comes close on the heels of the latter entering into the oil and gas exploration business vertical having acquired participatory interest in two blocks in the north-eastern state of Assam.

The collaboration between OIL and NRL is expected to be through the transfer of government holdings in the various State-run energy companies. Under the scheme, oil marketer and refiner, Bharat Petroleum Corporation Limited (BPCL) is likely to transfer it entire 61% equity holding in NRL to OIL.

Currently, OIL holds a 26% equity stake in NRL, while the government of Assam holds 12.35%.

Significantly, the transfer of NRL's equity holding from BPCL to NRL will precede government plans to privatise the former by the sale of 53% of government holding in BPCL to private investors for which it has appointed Deloitte Touche Tohmatsu as financial and transaction advisers.

The cross-holding participation interest between OIL and NRL is expected to bring synergies in the operations of the two companies, both of which have predominant operations in India's north-eastern states. To acquire BPCL’s existing equity holding in NRL, the government estimates that OIL will have to invest about $563-million.

Government sources said that the equity cross holding between NRL and OIL was part of the government’s long-term plans to create a mega-energy corporation by ultimately merging the country’s largest oil refiner and marketer, Indian Oil Corporation Limited, and NRL and OIL. Such an energy company would rival and compete with another planned mega-energy corporation that the government was planning to create through merging E&P major ONGC and oil refiner and marketer, Hindustan Petroleum Corporation.

Once OIL’s acquisition of a stake in NRL was complete it would give the former access to an additional three-million tons a year of refining capacity for its crude oil production in the north-eastern states. NRL, for its part, has already committed to invest an additional $3.09-billion to ramp up its refining capacity from three-million tons a year to nine-million tons a year.

Last month, the Petroleum and Natural Gas Ministry formally approved NRL’s acquisition of a participatory interest in two exploration blocks at the Namrpup and West Mechaki blocks in Assam.

The exploration blocks had earlier been awarded to OIL in 2018 under the Open Acreage Licensing Policy. OIL would continue the operation of both the blocks as per farm-out agreements signed earlier for both the blocks. This would be the first exploration activity of NRL and the proposed equity interest of OIL in NRL would strengthen collaboration between the two companies, government officials said.