BPCL disinvestment plan: Upstream assets likely to play a vital role in India’s energy security, need to protect them

Source: Reuters

India faces a range of evolving energy security challenges. India’s combined import bill for fossil fuels is likely to triple over the next two decades, with oil by far the largest component, a February 2021 report by the International Energy Agency (IEA) says.

Domestic production of oil and gas will continue to fall behind consumption trends and the net dependence on imported oil will rise from 75 percent currently to above 90 percent in 2040, IEA's India Energy Outlook 2021 report says. It warns that this continued reliance on imported fuels creates vulnerabilities to price cycles and volatility as well as possible disruptions to supply.

Over the last few decades, India has made strenuous efforts to secure oil and gas blocks all over the world by encouraging Indian companies, especially public sector oil & gas companies, to bid for and acquire either majority or minority equity stakes as part of consortia of domestic and/or foreign companies.

As part of this national goal of striving to achieve energy security, Bharat Petroleum Corporation Ltd (BPCL) set up a wholly owned subsidiary Bharat Petro Resources Ltd (BPRL) in 2006 to carry out Exploration and Production activities considering the need for focused approach in Exploration and Production.

Over the last 14 years BPRL has acquired participating interest (PI) in 27 blocks—15 are in India and 12 overseas— along with equity stakes in two Russian entities holding the licence to four producing blocks in Russia.

Related stories

Ajay Bodke

Independent market analyst|Independent market analyst

• 
  Here's what could puncture the rally that began on optimism over reopening of global economies
• 
  Trouble in Motown! Auto sector which is 49% of manufacturing GDP looks for rescue
• 
  From a turbulent 2018 to a confluence of propitious tailwinds in 2019

Seven of the 15 blocks were acquired under different rounds of New Exploration Licensing Policy (NELP), five blocks were awarded under discovered Small Fields Bid Round I and three blocks were awarded under the Open Acreage Licensing Policy (OALP) Bid Round I.

Out of the 12 overseas blocks, five are in Brazil, two in United Arab Emirates and one each in Mozambique, Indonesia, Australia, Israel and Timor Leste.

These blocks are in various stages of exploration, appraisal, pre-development and production. The total acreage held by BPRL and its subsidiaries is around 32,304 km of which approximately 57 percent is offshore.

The PI in respect of blocks in India, Australia and Israel are held directly by BPRL and the others are held through wholly owned subsidiaries in The Netherlands, Singapore and India.

BPRL and its consortia have 26 exploration discoveries in respect of blocks held in Brazil, Mozambique, Indonesia, Australia and India.

Securing the future 

The government of India has taken a decision to disinvest its entire holdings in BPCL to a private company as part of its asset monetisation plan. The winning private bidder, foreign or domestic, will eventually end up acquiring not only the refining and marketing assets of BPCL but also all the exploration assets built assiduously by BPRL over the last 14 years to secure India’s medium to long-term energy requirements.

Both ONGC-Videsh and BPRL have been at the forefront as key Indian players to secure oil and gas exploration assets globally. In May 2021, India lost the ONGC-Videsh discovered Farzad-B gas field in the Persian Gulf after Iran awarded a contract to develop the giant gas field to a local company.

As these upstream assets of BPRL are likely to play a vital role in securing India’s energy requirements, it would be advisable to transfer them to the nation’s flagship PSU energy companies like ONGC, OIL and IOC after carrying out appropriate valuation exercise well before the government privatises BPCL. Sale of Numaligarh refinery to OIL and Engineer's India Ltd. by BPCL is the precedent that can be followed by the government.

Any private company, foreign or domestic, that ends up acquiring BPCL will most likely sell these exploration blocks, depriving the country of energy security and inviting the charge of asset stripping.

The author is an independent market analyst

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.