OVL acquisitions fail to augment energy security
New Delhi   08-Jan-2019

ONGC Videsh (OVL), the overseas arm of Oil and Natural Gas Corporation (ONGC), seems to be following the trajectory taken by its parent, which failed to achieve any significant increase in domestic production of oil and gas. As per the company data, though the overseas hydrocarbon output from OVL rose by over 10 percent to 14.16 million tonnes of oil equivalent (mtoe) in FY18 against 12.80 mtoe in FY17, several of its acquisitions remained mired in delays causing significant production and revenues losses. OVL acquired a significant stake in Russia’s Vankorneft in 2016 while another consortium of Indian oil companies acquired a 10 percent stake in Zakum, the UAE’s offshore oil & gas field, in February 2018. These two have played a significant role in giving incremental volumes to OVL but given that the Indian public sector companies till December 2018 acquired stake in 28 countries, including Australia, Azerbaijan, Bangladesh, Brazil and Canada, the output growth have nothing to talk about. “Some of the stakes acquired by OVL off late in producing oil & gas fields in Russia and the Middle East are the only saving grace for the company that continues to suffer from legacy issues where some acquisitions like Imperial Energy in Russia continues to bleed. “In other cases, mostly asset acquisitions in Africa, OVL continues to face serious issues that are affecting production and investment,” said an oil sector analyst. To augment India’s energy security, the government has been encouraging these companies to pursue overseas equity hydrocarbon opportunities. But, in the rush, OVL has also got entangled in deals that are failing to fetch quick returns. Mozambique oil and gas production block is a case in point. Delays in reaching a particular production level has caused deferring of investment decision finalisation, thereby postponing gas production by another 3-4 years.

“Oil & gas projects take time to reach the production stage. The company has been at the top of the game while making strategic investments that will begin to contribute towards the country’s energy security. Also, OVL’s international ventures are going to play a critical role in the realisation of ONGC’s long-term growth blueprint as well as furthering sovereign energy diplomacy reach,” said a source in the public sector undertaking. In FY18, total oil & gas production from overseas assets was 14.16 mtoe (oil 9.35 mmt and gas 4.81 bcm) against 12.80 mtoe in FY17. It’s an increase of 10.6 percent, mainly due to incremental production from Vankorneft and Sakhalin-1 projects (Russia), BC-10 project (Brazil), additional production from acquisition of 4 percent stake in the Lower Zakum concession project in the UAE and from exploratory success in Block CPO-5 of Colombia. Oil & gas production of ONGC group, including PSC-JVs and from overseas assets for FY18 was 64.21 mtoe against 61.62 mtoe in FY17, an increase of mere 4.2 percent. Over the last decade, ONGC’s domestic crude production has declined from 25.37 million tonnes to 22.25 million tonnes in 2018. Gas production has also stagnated around 22-23 billion cubic metres.