CCI to Clear 35 Oil Exploration Blocks

The Deputy Chairman of Planning Commission Montek Singh Ahluwalia's recent statement has regarding the Oil and Gas sector has improved investors’ sentiment on the sector. He has announced that the Cabinet Committee on Investment (CCI) will clear a few oil exploration projects within the next two weeks and a sufficient progress has been achieved in this regard. This is a good news for the sector which would witness new blocks for exploration.

Ahluwalia has said that about 35 oil blocks may be cleared by the CCI. Reliance Industries (RIL) has already seen 8 oil blocks from KG-D6 basin cleared by the Defence ministry. These blocks were declared as 'No-Go' blocks as they were overlapping with the proposed Naval and Air Force areas. The stringent conditions have also been relaxed for another 32 oil blocks. Such initiatives are required as the country needs to reduce its dependence on oil imports thereby reducing the current account deficit.

This is the second policy initiative that the government has taken in the last two months in this sector. Earlier in February 2013, the government had allowed the Oil and Gas companies to start exploration activities in the development blocks. This particular proposal was pending with the government for more than 1.5 years and the clarity on the same has prompted Cairn India to drill more wells in the Rajasthan block.

The Rajasthan block contributes to more than 30% of the country's total oil production and if the company is successful in finding extractable oil then that will be a significant progress in increasing the oil production from the block. The approval, however, has come only on the condition that the cost recovery of such wells would only be allowed if there is a commercially exploitable discovery.

Ahluwalia's statement has pushed the BSE Oil and Gas index up by 1% with 7 out of 10 stocks in the index ending the day in gains. RIL, BPCL and Oil India gained nearly 2% each by the end of the day. Investors’ sentiments in fact have remained very bullish on the sector as the index has surged over 8% in the year so far. The companies in the sector have also put in a very good performance in the third quarter of the current fiscal aiding the positive sentiment.

With the CCI’s decision expected within the next two weeks, we expect this positivity to remain upbeat on the sector.