ONGC to take over HPCL and BPCL, form mega oil company.

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Top government officials have revealed that the Oil and Natural Gas Corporation (ONGC) will assume control of Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation Limited (BPCL) in a merger of these state-run petroleum companies.

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This move will establish a massive oil company which is required in order to enable India, the third largest consumer of oil, to gain a better foothold in the foreign market as it competes with global giants for asset acquisition, oil field acquisition, etc.

The government will transfer the controlling stake of 51.11% of HPCL’s shares to ONGC, effectively transferring control of both these companies to the ONGC. It is expected that the resultant entity will be on par with major players like Shell, BP and Exxon.

Vertical integration

Vertical integration of ONGC’s Exploration functions and HPCL’s distribution network mean that the giant merged company will be able to make a profit whether the already-volatile crude oil prices surge or drop. If crude oil prices surge upwards, the ONGC’s commercial exploration business will benefit greatly. If crude oil prices drop, HPCL’s distribution network will benefit. This thinking is in line with the global giant oil companies BP, Exxon, Shell, etc. which are all vertically integrated.

ONGC will be able to make full use of HPCL’s 3,015km pipeline network and the Mumbai and Vishakapatnam refineries to aid its own exploration functions.

Big oil India

Among the many factors that necessitated this decision was India’s need to form a mega oil company which could take on international competition from Shell, BP, and Exxon. The official Budget announcement was to “create an integrated public sector oil major which will be able to match the performance of international and domestic private sector oil and gas companies.”

The status of Indian Oil Corporation, Oil India Limited, and other oil companies will remain the same going forward.

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