While private sector companies are known to take that extra risk, diversify into newer areas even at the risk of inviting investors’ wrath, stateowned companies are happy in their comfort zone, anchored in their traditional businesses despite holding the biggest chunk of idle cash in the corporate world.
It’s in this context that state owned Bharat Petroleum’s gradual but successful move into the exploration & production (E&P) space needs to be looked at. After all, E&P business is vastly different from refining and marketing, although they form the same value chain.
In the next five years, the company will start earning much higher profits from its E&P business than the government-sponsored profits it can earn from its traditional business.
In 2010 huge natural gas deposits were discovered in a Mozambique offshore block. BPCL’s 10% stake in it is already worth over $2.2 billion, or half of the company’s value today.
BPCL also holds between 10% and 20% stake in 10 blocks in Brazil, which have seen some exciting oil discoveries over the years. Although not certified yet, they are likely to be significant going by the technical details available.
By 2018, both these mega projects begin production, BPCL is likely to have a bigger source of profits than its conventional businesses.
Experts are already valuing the E&P portfolio steeply. In fact, most brokerage houses prefer BPCL as an investment candidate for its E&P success.
“BPCL remains our top pick,” mentioned a Barclays report in May 2013 attributing the preference to its undervalued E&P portfolio.
The oil reserves in Brazil will be known in the first half of 2014, according to a Motilal Oswal report. “Assuming the recoverable reserves at 500 mmboe, it is likely to add around 50 to BPCL’s share value,” it mentioned.
As more details trickle in, this changing face of BPCL will turn it into a winner for investors.
It’s in this context that state owned Bharat Petroleum’s gradual but successful move into the exploration & production (E&P) space needs to be looked at. After all, E&P business is vastly different from refining and marketing, although they form the same value chain.
In the next five years, the company will start earning much higher profits from its E&P business than the government-sponsored profits it can earn from its traditional business.
In 2010 huge natural gas deposits were discovered in a Mozambique offshore block. BPCL’s 10% stake in it is already worth over $2.2 billion, or half of the company’s value today.
BPCL also holds between 10% and 20% stake in 10 blocks in Brazil, which have seen some exciting oil discoveries over the years. Although not certified yet, they are likely to be significant going by the technical details available.
By 2018, both these mega projects begin production, BPCL is likely to have a bigger source of profits than its conventional businesses.
Experts are already valuing the E&P portfolio steeply. In fact, most brokerage houses prefer BPCL as an investment candidate for its E&P success.
“BPCL remains our top pick,” mentioned a Barclays report in May 2013 attributing the preference to its undervalued E&P portfolio.
The oil reserves in Brazil will be known in the first half of 2014, according to a Motilal Oswal report. “Assuming the recoverable reserves at 500 mmboe, it is likely to add around 50 to BPCL’s share value,” it mentioned.
As more details trickle in, this changing face of BPCL will turn it into a winner for investors.
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