Mumbai:The drop in prices of global oil assets, on account of economic downturn and falling crude oil prices, has thrown up opportunities for Indian oil companies looking to increase their asset base.

In a report on upstream oil amp; gas sector, global consultancy firm, Ernst and Young (E & Y), said, "The valuation of oil and gas companies has decreased and this offers Indias companies the opportunity to buy global assets at a more reasonable price than was previously possible."

An oil amp; gas analyst with a leading domestic brokerage house said though asset valuations have decreased, there are a lot of other issues that have not changed. The biggest among these are geopolitical concerns and tough competition from Chinese players.

The E & Y report said, "In the past three years, China has outshone India at energy-asset auctions overseas. ONGC Videsh lost out to Chinese oil and gas companies in three major cases - EnCanas assets in Ecuador, the PetroKazakhstan asset and a 50% stake in Angolas BP-operated Block 18."

However, Vinay Nair, analyst with local brokerage Khandwala Securities, said, "Crude prices will have to fall further or sustain at this level for a few more months before the price of oil assets come down globally."

As for now, there is no major change in capex plans of oil companies across the world. This means, though oil prices have fallen, the prices of the assets are at the same level. Also, there has been no variation in the price of oilfield services, especially in the price and availability of rigs, Nair said.

However, a further drop in crude price is likely to open up another vista for oil companies.

"Private equity and hedge funds are bearing the brunt of the current global financial crisis. If this condition persists or further deteriorates, it may lead to a distress sale of their oil and gas assets," said the E & Y report.

This may provide oil amp; gas companies with sufficient cash to purchase assets at cheaper rates or on advantageous terms.

But companies are expected to focus on higher-return projects, which will be financed through internal accruals. Capital-intensive ventures, such as oil sands and deepwater projects, will be hard-hit, as falling crude oil prices have made their economic feasibility uncertain.

The report said if Indian oil companies want to best their Chinese counterparts, they would have to adopt an innovative approach - which the government seems to be keen on.

Source : DNA