OIL, ONGC unlikely to benefit even as govt reworks subsidy sharing formula

OIL and ONGC sell crude to OMCs at $56 per barrel with $112 per barrel fixed as full price for crude purchase

Oil India Ltd (OIL) and Oil and Natural Gas Corporation (ONGC) may not get a full exemption from sharing the oil subsidy. This is because the government is reworking the subsidy sharing formula to cope up with difficult situation posed by falling crude prices, only as a temporary relief.

According to officials, this formula will not be a long term solution which in any case will be reworked later.

"The immediate need is to address the peculiar situation where the exploring majors are not only selling crude to the oil marketing companies but giving them free dollars as well since the crude price has come down below the price of $56 per barrel.”, said official sources

 At present, as per the current formula, OIL and ONGC sell crude to domestic oil marketing companies at $56 per barrel with $112 per barrel fixed as the full price for crude purchase. Thus the two companies share their subsidy burden.

However the crude prices are on a downslide with the international crude oil price of Indian Basket is currently around $45.16 per barrel and the low oil prices are expected to help the Centre save at least Rs 40,000 crore on fuel subsidy in 2014-15.

Thus according to officials, as per the new formula, the slab of $56 per barrel in itself will be lowered largely to help the exploration companies in the immediate future to manage their finances.

Officials said, the current plan to work out a short term solution first to tide over the current situation when the crude prices are continuing with their downward slide. A long term formula may be worked out later.

Thus the immediate requirement is to lower the discounted price to provide immediate relief to the oil exploration companies.

Reportedly, India's crude oil production fell 1.4% in December as output from oilfields operated by private companies fell sharply. As per data released by ministry of petroleum, crude oil production was at 3.21 million tonne in December 2014, which is 1.4% lower than 3.25 million tonne in the same month a year ago.

State-owned Oil and Natural Gas Corp (ONGC) reported a 0.7% rise in output at 1.9 million tonne on the back of 5% surge in offshore production. However, privately operated fields reported a 5.2% drop in production at 1.02 million tons.

Similarly, natural gas production dipped 3.5% to 2.89 billion cubic meters as output from privately operated fields like Reliance Industries' eastern offshore KG-D6 block continued to decline.

ONGC's gas production was down 5.1% at 1.89 bcm while output by private firms from offshore fields too declined by 4.5% to 641.86 million cubic meters.

The 22 refineries all over India produced 19.72 million tonne of petroleum products in December, 6.1% more than 18.6 million tonne fuel produced in December 2013.