Pick of the week: PSU stocks as wealth creators

India’s second largest oil marketing company BPCL has been reeling under the pressure of under-recoveries just like its peers Indian Oil and HPCL. But the company has had success in its petroleum exploration ventures.

The most prolific discovery was made in a block offshore of Mozambique where huge natural gas deposits were discovered. BPCL’s 10 per cent stake in the block would entitle it to between 3 and 6 trillion cubic feet of gas at current estimates, which is today worth over $2 billion or more than 40 per cent of BPCL’s current market capitalization.

Similarly, the company’s consortiums have made multiple hydrocarbon discoveries in offshore Brazil, Indonesia and Australia as well as in the Cauvery basin.

However, these discoveries are in preliminary phases and are being evaluated, which means they are still 4-5 years away from production.

Nevertheless, their magnitude is huge when compared to BPCL’s size today.

By 2017-18 when the revenues from these assets start flowing, they could contribute the biggest chunk in the company’s total profits.

The company’s dependency on government for its profitability would then recede substantially.