The New Year has begun well for oil & gas. Despite the pressure to be populist in an election year, the government has shown courage to take price hike decisions, says Nomura Financial Advisory and Securities.
With the gas price hike notification in place, the price of most domestic gas will double from April 1. This could revive long-stalled upstream investment. After 3.5 years of decline, KG-D6 volumes have moved up this month.
The monthly diesel price hikes have been maintained. OMCs raised the non-subsidised LPG price by a sharp 22% and, despite strong pressure, the government did not force a roll back. It is still resisting rising demand to raise the LPG cylinder cap from 9 to 12.
In its first major decision in the gas space, the appellate tribunal has ruled against retroactive tariff, which has been a key overhang.
Going has been good for most companies, except for CGDs where the government’s attempt to reallocate gas has got stuck in legal tangles. In the large cap space, our preferred plays are GAIL and RIL, and we prefer Petronet LNG among the mid-cap gas names, it added.
This weekend, the government showcased 46 E&P blocks which have so far been finalised for the tenth round of new exploration policy licensing (NELP X). It expects to offer up to 60 blocks in this round. Investor interest had sharply declined in the previous 2 rounds, and the current round is being launched after a gap of over three years. In recent months, the government has taken several steps to shore up sentiment such as, gas price hike, allowing exploration in mining lease areas, clearance of several pending issues, etc.
''While sentiment has certainly improved, there still remains confusion or apprehension on several issues like income tax holiday, marketing freedom, etc. It is planning a changed fiscal regime with uniform licensing policy for all type of hydrocarbons. While the fiscal terms have not yet been released, it is contemplating moving over to revenue/production sharing regime from current cost recovery regime for E&P blocks. Unless fiscal/contractual terms provide good incentive and comfort to investors, and are progressive, we think the investor interest (especially of large multinationals) may remain subdued,'' Nomura added.
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