The petrol price deregulation has caused structural changes in the subsidy burden sharing mechanism for Oil companies ( both upstream and downstream companies).

Recently BPCL had hiked the petrol prices by Rs. 2.95 which had given a fillip to the stock.

The recent crude price increase is causing BPCL to a huge loss as the under-recoveries for the Oil Marketing Companies are increasing daily. They are losing Rs. 275 cr. in revenue daily because the increase in Crude prices. The BPCL is losing Rs. 7 per litre of Diesel. They also lose Rs. 18 on Kerosene and Rs. 280 on LPG.The OMCs review the retail prices every 1st and 16th of every month.

Again with crude at 90 dollar from hereon the subsidy burden would come to 75000 cr. for this fiscal. Though people speculate the subsidy sharing to be adhoc but the oil secretary has clarified it to be 33% for the upstream companies. 50% is to be shared by the government in cash and the rest shall fall upon the OMCs i.e. 17%. 17% of 75000 cr. is 12750 cr. which shall be shared between 3 OMC.

The postponement of increase in Diesel and LPG prices has been caused further troubles for OMCs as the government clarified it couldn't undertake price hike in this high inflationary scenario.

BPCL expects to increase it refining capacity to 45 mt by 2015 from the current 30mt. They are also aggressively trying to develop their exploration and production facilities. For developing these it would require huge capex of 50000 cr. in the next 5 years. This should entail it to earn profits of atleat Rs. 2000-Rs. 5000 cr. each year. It has refineries in Mumbai, Cochin, MP and Assam. Since 2 of them are port areas they can use it export petrochemicals.