India’s petroleum sector was the unwanted child for much of 2012, but there is light at the end of the tunnel for the sector as the government shakes off its inertia and shows signs of addressing its problems. Investors, though selective, are turning bullish as the government appears to be moving towards market pricing of petro products, though total decontrol may be years away.
In 2012, the BSE Oil & Gas index rose 10%, underperforming the 25% gain for the broader benchmark BSE Sensex. Much of this underperformance was due to policy inaction-induced bleak earnings outlook. It is changing now. The petroleum ministry is expected to make headway on the long-standing issues regarding E&P capex approvals for Reliance Industries and Cairn India. The Rangarajan Committee on pricing of gas is supposedly recommending linking of price to international benchmark such as Henry Hub in the US, or imported liquefied natural gas prices. If done, it improves the earnings outlook for explorers such as RIL and Cairn.
“In our recent interaction, government officials sounded more positive and indicated that the pace of decisionmaking has improved. DGH is working towards improving the attractiveness of Indian E&P, while PNGRB is trying to bring in more transparency,” cited a report from Motilal Oswal in mid-December. The research house expects this to be positive for RIL and Cairn.
The government had constituted a committee under the chairmanship of C Rangarajan, chairman, PM’s Economic Advisory Council on May 31, 2012, to look into the design of future production sharing contracts in hydrocarbon and suggest guidelines for pricing domestically produced gas.
“Beyond 2014, we expect to see a review of pricing terms. Currently, our only producing block KG-D6 offers gas at $4.20 per mmbtu, which will remain in force till April 2014. Based on current alternative LNG import pricing, and recognising that a competitive pricing framework is essential for domestic development activity, we see considerable scope for a more market-linked gas pricing regime to prevail post 2014,” said Bob Fryar, executive VP, production at BP Global, at an upstream investor day earlier this month. BP holds 30% stake in the KG-D6 block operated by Reliance.
ABarclays report on the oil & gas sector highlighted that the natural gas prices could rise with a decision on KG-D6 price revision likely in FY14. This will be a positive for ONGC and Oil India, besides RIL.
A few foreign brokerage houses such as UBS and CLSA have turned positive on Reliance last month on hopes of resolution of regulatory issues and gas pricing. It may be still too early to forecast how the government regulations would shape up. But any govt action could only be positive from where it was for the last few years.
In 2012, the BSE Oil & Gas index rose 10%, underperforming the 25% gain for the broader benchmark BSE Sensex. Much of this underperformance was due to policy inaction-induced bleak earnings outlook. It is changing now. The petroleum ministry is expected to make headway on the long-standing issues regarding E&P capex approvals for Reliance Industries and Cairn India. The Rangarajan Committee on pricing of gas is supposedly recommending linking of price to international benchmark such as Henry Hub in the US, or imported liquefied natural gas prices. If done, it improves the earnings outlook for explorers such as RIL and Cairn.
“In our recent interaction, government officials sounded more positive and indicated that the pace of decisionmaking has improved. DGH is working towards improving the attractiveness of Indian E&P, while PNGRB is trying to bring in more transparency,” cited a report from Motilal Oswal in mid-December. The research house expects this to be positive for RIL and Cairn.
The government had constituted a committee under the chairmanship of C Rangarajan, chairman, PM’s Economic Advisory Council on May 31, 2012, to look into the design of future production sharing contracts in hydrocarbon and suggest guidelines for pricing domestically produced gas.
“Beyond 2014, we expect to see a review of pricing terms. Currently, our only producing block KG-D6 offers gas at $4.20 per mmbtu, which will remain in force till April 2014. Based on current alternative LNG import pricing, and recognising that a competitive pricing framework is essential for domestic development activity, we see considerable scope for a more market-linked gas pricing regime to prevail post 2014,” said Bob Fryar, executive VP, production at BP Global, at an upstream investor day earlier this month. BP holds 30% stake in the KG-D6 block operated by Reliance.
ABarclays report on the oil & gas sector highlighted that the natural gas prices could rise with a decision on KG-D6 price revision likely in FY14. This will be a positive for ONGC and Oil India, besides RIL.
A few foreign brokerage houses such as UBS and CLSA have turned positive on Reliance last month on hopes of resolution of regulatory issues and gas pricing. It may be still too early to forecast how the government regulations would shape up. But any govt action could only be positive from where it was for the last few years.
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