The year gone by has been a good one for most oil and gas companies and stocks. The S&P BSE Oil & Gas Index gained about 36 per cent since December 2016, higher than the 27 per cent gains in the S&P BSE Sensex. Many individual stocks within the Oil and Gas Index have done very well.

Top of the list are Delhi-based city gas distributor Indraprastha Gas and market behemoth Reliance Industries, rallying about 70- 80 per cent. Gas utilities GAIL (India) and Petronet LNG also put up a strong show, gaining about 40–50 per cent. So did the PSU oil marketing stocks — BPCL, Indian Oil and HPCL, up about 25-50 per cent. The only disappointers among the big players were the PSU hydrocarbon explorers Oil India and ONGC with stock gains restricted to single-digits.

The strong show by many of these stocks is, to a good extent, reflective of better operating and financial performance of the companies. For instance, healthy growth in volumes and better margins due to benign gas costs helped Indraprastha Gas grow its profits about 13 per cent y-o-y in the nine months ended September 2017. Ditto for gas importer Petronet LNG – it benefited from the expansion of its Dahej terminal and lower costs, posting y-o-y profit growth of about 26 per cent. Reliance Industries benefitted from good volume growth and better price realisations in its mainstay refining and petrochemicals business that offset weakness in the exploration segment.

Revenue visibility in the telecom business (RJio) also helped the stock. The company’s profit increased more than 17 per cent in the nine months ended September 2017. GAIL (India) gained from better performance in its petrochemical and gas transmission business; its adjusted profit was up about 5 per cent y-o-y. The PSU oil marketing companies Indian Oil, BPCL and HPCL saw profits dip this year, but this was mainly due to inventory losses, a cyclical factor. Core refining margins were good and the companies also benefitted from low under-recoveries and interest costs. Despite the rise in oil prices since June, ONGC and Oil India’s performance over the year was pulled down by a couple of factors — a one-time royalty settlement expense and low gas prices.

In the coming year, expansions and upgrades should help Reliance Industries and also the PSU refiners. Progress at its Kochi-Mangalore pipeline should benefit GAIL (India), while good demand conditions should aid gas utilities such as Petronet LNG and Indraprastha Gas. ONGC and Oil India’s fortunes will hinge on the movements in oil price, which could be capped around current levels (about $65 a barrel), given global demand-supply conditions. Low domestic gas prices and challenges in increasing output could also be a drag.