Domestic oil producers lose Rs 1.4-lakh cr value in 6 months

Goldman says sector could lose $1 trillion globally if $60 becomes the new normal for Brent crude oil

Even as global financial powerhouse Goldman Sachs has forecast a loss of $1 trillion for the global oil industry if the benchmark Brent crude oil price remains below $60 a barrel, Indian oil producers led by Oil and Natural Gas Corporation, Reliance Industries, Oil India and Cairn India have already lost combined market value worth Rs 1,40,000 crore (Rs 1,400 billion) in six months.

There has been a 46 per cent fall in global crude oil prices in the said period.

A Goldman Sachs report has said global oil producers will lose $1 trillion as they will be forced to shut unviable projects, with oil around $60 a barrel.

The research looked at 400 wells across the world awaiting investment decisions.

Deep sea oil fields that require billions of dollars of investment will be at high risk, the report says.

The total investment at risk is $930 billion and oil companies will need to cut their expenses by 30 per cent to make their projects viable provided oil remains around $70 a barrel.

Domestic analysts say though share prices of Indian oil producers will remain soft, with crude oil inching towards $70 a barrel over 12 months the recovery will be fast.

“A lot of marginal oil fields will be shut as they are not viable at current levels.

"We expect the Brent crude price to go up to $70 in a year's time,” says Ajay Saraf, executive director and head of institutional equities at ICICI Securities.

Many global experts say energy stocks have been beaten down and offer long-term value at current prices.

Among the losers in the last six months, Reliance Industries has lost market capitalisation of Rs 68,710 crore (Rs 687.1 billion), as of Wednesday, followed by Rs 48,338 crore (Rs 483.38 billion) lost in ONGC’s market capitalisation.

None of the Indian companies have announced any production or capital expenditure cut till date but investors have sold oil producers' shares as they are worried the earnings per share of these companies will come under pressure at lower oil prices.

“We have cut our fiscal 2015-17 earnings per share estimates for ONGC and Oil India by 7-14% and for Cairn by 15-30%, led by a lower Brent assumption between $91 and $80 a barrel for the fiscal years 2015, 16 and 17,” says an analyst with Motilal Oswal.

Analysts say oil prices will go up, taking into account the production cuts by oil majors across the world.

A Maquarie report dated December 12 says Brent prices could rally back towards $90 a barrel in late 2015 or the first half of 2016.

This is on the assumption that global demand growth will stay above one million barrels a day and non-Opec production growth will slow from 1.4 million barrels a day to 500,000.

This is also based on the assumption that there are no more Opec supply cuts and no unplanned supply disruptions take place during 2015.