Major oil PSUs will be combined to form a behemoth oil company, FM Arun Jaitley announced in the Budget 2017-18.
Two new oil reserves will come up in Chandikhole (Odisha) and Bikaner (Rajasthan).
The government has been looking at this decision for a decade.
Govt approves merger of Oil PSU merger
Decision to match international competition
"Possibilities of such restructuring are visible in the oil and gas sector. We propose to create an integrated public sector oil major which will be able to match the performance of international and domestic private sector oil and gas companies," Jaitley said.
Importance of this merger
According to the government, this plan will enable these oil PSUs to take on international and domestic players.
The top eight oil PSUs (out of thirteen) bear resources worth over USD 80 billion.
The proposed entity may be able to compete with global players like UK's BP and Russian Rosneft.
Shares of oil companies rose up to 4.15 per cent after the announcement.
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Advantages of the PSU merger
Jaitley said the decision would enable the PSU oil companies to take higher risks and compete with domestic players (Reliance, Cairn) and international giants (UK's British Petroleum and Russia's Rosneft).
It will help the government in achieving economies of scale, a term that describes proportionate saving in costs gained by an increased level of production.
The merger will generate better value for shareholders.
"Capacity to bear higher risks"
Merging the existing oil and gas companies will give capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders, Jaitley added.
03 Feb 2017
Difficult but profitable decision: HPCL
Hindustan Petroleum and Chemical Limited (HPCL) Chairman and Managing Director MK Surana said the decision to merge oil PSUs was a difficult but financially profitable one.
He said while the details of the merger are not clear, "size of a company does matter in the oil industry".
Such integration is not new to the oil industry, Surana added.
Possibility of multi-PSU : ONGC
"It will be difficult to have one entity with all the oil majors of India together. Therefore, I think practically it will be more than one and may not be one though we need to get clarification further," ONGC Director (Finance) AK Srinivasan said.