Oil cos to use higher cash flows to expand asset base: S&P

Indian oil and gas companies are likely use their improved cash flows from market-linked fuel prices to expand their asset base and enhance operational quality, S&P Global Ratings said today.

They are expected to step up investments in upgrading refineries to meet cleaner fuel standards, improve yields and create flexible refinery configurations in product pipeline and gas infrastructure capacities, it said. "The combination of reform-driven improvements in financial health, lower crude oil prices, and forecasts of mid-single-digit demand growth for petroleum products puts Indian oil companies in a sweet spot to invest in growth," S&P Global Ratings credit analyst Vishal Kulkarni said.

"We expect the fuel-price reforms in India since late 2014 to continue and enhance business and financial prospects for the oil and gas companies. Making fuel prices market linked has improved oil marketing companies' profitability, bolstered cash flows, and lowered their debt."

Oil marketing companies also need additional investments to maintain their dominant market share amid rising competition. The planned combined capital expenditure (capex) by the three oil marketing companies - Indian Oil, Bharat Petroleum and Hindustan Petroleum, over the next five years is Rs 3.2 lakh crore -- a jump from the Rs 1.6 lakh crore they invested over the past five years.