HPCL to decide on future of its upstream biz

State-run oil refiner Hindustan Petroleum Corporation Ltd (HPCL) will decide the future of its upstream business after coming under the fold of India’s biggest oil and gas explorer and producer, Oil and Natural Gas Corporation Ltd (ONGC), a top company official has said.

Prize Petroleum Company Ltd, the wholly-owned upstream unit of HPCL, is a full or part owner in six operating fields in India and two in Australia.

“We have a smaller portfolio for upstream as a company. In the current situation, we need to take a call on whether we will be continuously doing upstream or if we will concentrate only on downstream,” HPCL Chairman and Managing Director Mukesh Kumar Surana said at a media briefing.

In January, the government sold its 51.11 stake in HPCL to ONGC for ₹36,915 crore.

“As of today, wherever we are, there we are continuing with that, and whatever we were evaluating, we are also evaluating till we take a final call on the total strategy as a group on that.

“So, while we are a more focussed downstream company and ONGC an upstream company, it will be a logical call to take on whether both should be continuing in this or not. Just like it makes sense for Mangalore Refinery and Petrochemicals Ltd (MRPL) to be with us, we will also see how we want to go on Prize Petroleum; whether we can have a different niche segment for Prize, where they can be especially in the smaller fields, where ONGC as a big company, may not find it profitable. We need to take that call, but as of today, Prize continues to exist as a company; it will continue with the assets it has in India and overseas, and they are continuing with the resources they have,” Surana added.

Over the past 4-5 years, Prize returned 19 of the 21 oil exploration and production blocks it won under the New Exploration and Licensing Policy (NELP) rounds 2 and 3. Most of these blocks were secured through joint ventures with other parties. Upstream, according to Surana, is a high-risk, high-reward business.

“After we do the initial exploration work, if we find that it is not prospective, then we’ve got a choice to do further exploration or relinquish it. In these blocks, after initial assessment, we found that either they were too risky because there are deep water blocks.

“So, in the first shot, if you are not getting the finds, then wasting more money may be slightly more risky because the risk-reward ratio is not favouring. Based on that, as a JV, we have decided to relinquish those blocks,” he said.

“In exploration, you should not have an emotional attachment to an asset just because you have it. Otherwise, it can become a bottomless pit. We have taken a conscious call to exit these blocks where we find the risk-reward ratio does not favour further investment.

“This is part of the business and is true for all the businesses, but more so with upstream and it is true with all upstream companies,” Surana added.

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