Oil majors ONGC, OIL shares fall on reports of adverse pricing decisions

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Media reports have suggested that the Rangarajan Committee recommendations on gas pricing will be implemented only partly – applying only for the incremental production over the current levels, has caused big fall in the scrips of PSU oil majors ONGC and OIL today. OIL India fell over 6%, ONGC fell over 5%.

The suggestion will benefit a private company like Reliance Industries, which can easily add to their production capacity as it has brought several new wells into production successfully; while ONGC, which has found oil in the KG Basin along with RIL is yet to start extraction. Giving higher price to additional production should motivate the companies for higher production, think the Petroleum Ministry officials, while avoiding an indirect rise in cost for public and other consumers for the basic consumption.

“Reliance Industries will be major beneficiary of the recent policy, as they would be in position to hike production. While for ONGC & OIL incremental production wouldn’t be so high in next 2 years at least, ONGC & OIL would benefit in long-term when unviable wells become operational and new NELP norms. More important for oil companies is government subsidy policy as high hopes are already built in, ” said an industry watcher.

If all the untapped wells that belong to the public sector companies are pushed into production, even these companies might benefit under this kind of pricing mechanism. But for now, the PSU oil majors have taken a beating at the market. Reliance share too fell by about 2%.

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