State-owned exploration giant ONGC is considering a plan to dilute its stake in refiner HPCL, which it had acquired for Rs 36,915 crore, to reduce debt and fund exploration projects.

Sources said the company has debt of more than Rs 20,000 crore after buying out HPCL, while investments in exploration, its principal activity, have fallen rapidly.

“The call on selling stake in HPCL has to be taken by ONGC,” oil ministry officials said. Oil minister Dharmendra Pradhan had said last week that “we have a clear vision that the government has no business to be in business”.

Sources said the buyout of HPCL had not resulted in the integration of the two companies, which had different lines of business and corporate cultures. It only helped the Modi government to meet the disinvestment target set for the last fiscal, they said.

HPCL, in fact, had refused to recognise ONGC its majority shareholder for 15 months. In regulatory filings for five consecutive quarters, HPCL listed “President of India” as its promoter with “zero” per cent shareholding. ONGC was listed as a “public shareholder” owning “77.88 crores” shares, or “51.11 per cent”, in the company. It was only in August that HPCL recognised ONGC as its promoter in its public filings, almost 20 months after the buyout.

Data showed ONGC’s expenditure on exploratory wells had almost halved to Rs 6,016 crore in the last fiscal from Rs 11,687 crore for the year ended March 31, 2014. This coincided with a steady decline in domestic crude oil production, which dropped to 35.68 million tonnes (mt) in 2017-18 from 38.09 mt in 2011-12.

ONGC’s buyout of HPCL and Gujarat-based GSPC have severely dented ONGC’s cash reserves. The buyout of HPCL in January 2018 had turned ONGC, a zero-debt company, into one with a debt of Rs 21,593 crore by the end of 2018-19. Interest payments zoomed to Rs 2,492 crore in 2018-19 from Rs 2.79 crore in 2014-2015.

Both HPCL, which was earlier part of the US-based Esso conglomerate, and BPCL, which was earlier Burmah-Shell, a British oil retailer, were nationalised in the 1970s.

HPCL recorded gross sales of Rs 2,95,713 crore in 2018-19 and net profit of Rs 6,029 crore. HPCL, which runs three major refineries in the country, is modernising its Visakhapatnam refinery at an estimated cost of Rs 20,928 crore. Once completed, this project will increase its refining capacity to 15mt from 8mt.