Oil''s well that ends well

19 July 2004

Valuations of oil companies to rise, says Sajeev Nair

Can rising oil prices potentially upset the apple cart in terms of valuations of publicly listed companies across the globe?

Exxon Mobil, the world's largest listed oil company with its market capitalisation pegged at $287 billion, may in the near future, displace General Electric to become the world's biggest company, provided energy prices continue its ongoing rally. And things are, of course, no different for Indian oil companies.

Local public sector exploration major Oil and Natural Gas Corporation (ONGC), just received a thumbs-up from a leading global brokerage house for the same reason. ONGC, which runs one of the largest exploration fields - Bombay High, with a market capitalisation of US $26.2 billion has been given a 'buy' recommendation back on its increased earnings estimated post its oil price upgrade, continued exploratory success and expectations of a whopping $4 billion cash flows in another three years.

According to a back-of-the-envelope calucation, for every $1 per barrel movement in the oil prices, ONGC's net profit could potentially change upto 5 per cent. No wonder that the brokerage house has turned aggressively bullish on the state-owned company's prospects.

Of course, rising oil prices are certainly good news for these market analysts who religiously track the sector, and for oil companies that ramp up their bottom lines. But it certainly isn't for policymakers who represent the end-users — consumers. Even as oil prices in India have quietly taken a huge political twist over the past few months, thanks to the recent elections, virtually every market player is keeping his fingers crossed till the new government takes a bold decision on this front.