The proposed consolidation among the public sector petroleum companies has started in a small way. Taking forward the petroleum ministry thinking on making Oil India Ltd the overseas investment vehicle for Indian Oil Corporation, the two companies will be signing an agreement for exploration projects on Wednesday.

The agreement is also expected to culminate into IOC acquiring OIL though officials said the proposal was at a "very preliminary stage".

The financial strength of the IOC balance sheet would be used for pushing OIL aggressively into the overseas oil equity business, said officials. The two companies will bid together for acquiring oil and gas properties abroad and also within India.

IOC is the country's largest refining and marketing company but does not have a visible presence in the upstream oil and gas exploration business.

It has equity in 12 exploration blocks under the new exploration and licensing policy but in all these blocks, it is in tie-ups with the Oil and Natural Gas Corporation.

OIL is a small exploration and production company with a historic legacy of possessing vital geological data but it lacks financial resources to acquire oil and gas properties abroad.

Currently, the ONGC Videsh is the only company bidding in a big way for oil and gas fields abroad. Other public sector companies like IOC, BPCL and HPCL have ambitions to own oil fields so as to cut their import requirements.

The three along with GAIL Ltd have been pleading with the government that they be   allowed access to equity oil abroad.

The IOC-OIL joint venture will concentrate on acquiring small and medium size oil and gas properties while OVL's role would be re-drafted into a company that would focus primarily on taking over big investment properties.