The Ministry of Petroleum and Natural Gas is learnt to be in favour of adopting a subsidiary model for combining the two oil PSUs instead of merging the companies, making ONGC the parent company of HPCL, the report said. However, the government will decide final model of combining in few months, it added.

Earlier this year, new reports emerged that the government is considering merging state-run oil refiners and marketers HPCL and BPCL (Bharat Petroleum Corp) with ONGC in a bid to create an energy giant of the global scale.

A vertically integrated oil company would be better able to absorb the fluctuations in the global crude oil prices, as when the exploration unit will suffer from falling prices, the refining unit will benefit, and vice versa.

Earlier in February, Finance Minister Arun Jaitley proposed setting up an integrated oil PSU (public sector undertaking) by merging companies with synergy in order to match the scale of the global oil giants.

India’s largest oil and gas exploration and production company ONGC said then that the proposed integration of oil PSUs will be a big positive for the sector as an integrated company is well positioned to handle volatility in crude oil prices. Negotiation power of a large oil company is better with its business partners, it had said.

In a research note released at around the same time, the brokerage firm HDFC Securities has said the upstream and downstream companies can merge to reduce the impact of crude volatility. The newly formed oil major with strong balance sheet can also plan for big ticket global acquisition of oil fields to reduce import dependency, it added. However, HDFC Securities said that it sees limited impact on stocks from this aspect while the details are awaited.

ONGC shares, down 1.1% at Rs 175.1 on BSE today, have fallen over 17% since February, when Arun Jaitley first talked about an integrated oil PSU. HPCL shares, down 1.28% at Rs 543.1 on BSE today, have risen a little over 3% during the same period.