Refiners, upstream cos soar on windfall tax cut; CPCL up 11%, Oil India 8%

CPCL, Oil India, ONGC, MRPL, Gail (India) and Reliance Industries were up 4 per cent to 11 per cent on the BSE in intra-day trade.

Shares of oil & gas companies surged up to 11 per cent on the BSE in Wednesday’s intra-day trade after the government slashed windfall tax on domestic crude oil production from Rs 23,250/tonne to Rs 17,000/tonne. The government also reduced additional excise duty on exports of diesel and ATF by Rs 2/litre and additional excise duty on petrol has also been removed.

Among the individual stocks, Chennai Petroleum Corporation (CPCL) rallied 11 per cent to Rs 296.40, Oil India gained 8 per cent to Rs 201.80, followed by Oil and Natural Gas Corporation (ONGC) up 7 per cent at Rs 136.40.

Mangalore Refinery & Petrochemicals (MRPL) was locked in the 5 per cent upper circuit at Rs 76.30, Gail (India) rose 5 per cent to Rs 147.30 and Reliance Industries gained 4 per cent to Rs 2,545 on the BSE in early trade today.

In comparison, the S&P BSE Sensex was up 1.2 per cent at 55,405 points, at 09:18 am.

Most of the oil & gas stocks had corrected by up to 45 per cent from their respective 52-week highs touched in June, after the government had imposed a windfall tax and additional excise duty on diesel, petrol and ATF exports.

"Post some moderation in product cracks in July, the government has reduced excise duty on fuel exports. This will benefit the refining companies. The new changes in excise duty will come into effect from July 20. Windfall tax has been reduced from ~US$ 40/bbl to ~US$ 29/bbl taking into account the recent trend in global oil prices. Reduction in windfall tax augurs well for oil producing companies", ICICI Securities said in a note.

While in absolute terms, the windfall taxes are still high, we believe steady normalisation in local fuel availability (a key energy security concern for government), stability in oil prices, more normalised global fuel margins and currency stability will help further reduction in windfall taxes under the fortnightly review, said analysts at Morgan Stanley in a sector update.

Reliance, Oil India and ONGC will see reduction in overhang, and equity valuations should start pricing in high sustainable energy margins as government intent gets clear, it said.

“We believe RIL should get priced at US$13-15/bbl sustainable refinery margins while ONGC at US$75-80/bbl oil and US$6/mmbtu commodity deck. The two should imply 25-40 per cent upside to equities as energy markets are expected to remain tight despite the current volatility in oil and reduction in global fuel margins from peak levels,” the brokerage said.