Reports suggest that Oil India (OIL) plans to spend over 32 percent of the planned capital expenditure (capex) in the 12th Five Year plan period (2012-17) towards exploration which will enhance its current reserve base.
According to analysts, the cost of production of the company for oil and gas is amongst the lowest in the world. This is mainly on account of the fact that most of the production for OIL is onshore.
Further on the quality of reserves OINL has high oil to gas ratio of 1.76 in terms of 2P reserves. In terms of 3P reserves, the ratio is even higher at 1.80 and better than its peer ONGC’s 0.75 signifying better quality of reserves when monetised.
OIL has been selling the gas produced from the nominated blocks at administered price of $4.2 per mmbtu, much lower when compared to other blocks such as Panna-Mukta-Tapti and imported LNG.
At the end of September 2013, OIL was having a cash balance of Rs 139 billion. Further, the company is expected to generate free cash flows of Rs 88 bn cumulatively in 2013-14 and 2014-15.
Analysts expect the cash balance to rise if the under recoveries fall higher than expectations and net crude realizations rises.
Additional surge would arise from higher than assumed increase in gas prices. In such a scenario the management is looking for deploying the cash in quality E&P assets.
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