India/Oil & Gas

Establishing Local Upstream Industries – Trends on India's Oil and Gas Market

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International Price Movements Drive Private investments in Oil and Gas

The buoyancy in global crude oil prices and linkage of domestic crude oil realisations to international oil price movements has translated to superior profitability and high cash generation for the private sector E&P players. Their public sector counterparts namely ONGC and OIL have however been unable to capitalise on this upside fully due to the large under-recovery sharing burden imposed on them by the Government of India.

Indian Oil Fields Can Not Live up to Expectations

The underrecovery burden for FY 12 stood at `1,385 billion, up sharply by 77 per cent from the level in FY 11. Notwithstanding the recent softening, crude oil prices are likely to remain at elevated levels over the foreseeable future, which will keep the under-recovery burden high. The extent to which this would have a bearing on the profitability and cash flows of public sector upstream companies shall continue to be a function of Government of India policies with respect to underrecovery sharing.

* Source: ICRA