With the sharp fall in global oil prices, which is currently pegged at around $44 a barrel, the government is likely to completely exempt upstream oil and gas companies such as Oil and Natural Gas Corporation, Oil India and Gail India from contributing towards fuel subsidies for the entire fiscal this year. The move is expected to boost the exploration companies' profitability and clear roadblocks for any future market offering of their shares.
Oil exploration companies have not taken any subsidy contribution during the first quarter and will soon clear their stance on the entire fiscal in terms of proper planning and better spending toward core activities. The decision will come as a big relief to exploration and productions companies, who are already staring at increasingly squeezed margins due to low crude prices and are looking at other avenues to mobilise resources for more investments.
At present, the upstream companies are required to make good of the under recoveries of oil marketing firms on the sale of kerosene and domestic cooking gas. The government has capped its budgetary support on kerosene to Rs 12 per litre and any gap between the market price and selling price of fuel after budgetary support has to be borne by upstream companies.