Company officials, however, say the current year would see a jump in both production and reserves.
OVL was formed in June 1989 from the erstwhile Hydrocarbons India and has since grown to become the second-largest exploration and production (E&P) company in India after parent ONGC both in terms of oil production and oil and gas reserve holdings.
According to sources, around 20 overseas oil and gas blocks in which OVL held stakes either as an operator or in the form of a participating interest (PI) have been relinquished over the last three years. More than $500 million worth of investments have been written off as a result of the relinquishment.
OVLs proven and probable reserves stood at 401.515 million tonnes of oil equivalent (mtoe) as on 2010-11 and this fell to about 395.613 mtoe at the end of 2012-13. Relinquishing blocks is a normal practice in oil and gas exploration. We expect to book new reserves by the end of FY14, said DK Sarraf, OVL managing director.
Former ONGC chairman RS Sharma said its not just OVL that has seen a fall in proven reserves but also other global oil majors. This, he said, can be partly attributed to the trend of resource nationalism or the national policies to keep majority share in hydrocarbon assets with local firms.
According to the OVL website the company currently has participation in 32 projects in 16 countries, out of which 12 are producing projects, four discovered/ under-development projects, 14 exploratory projects and two pipeline projects.
The reasons for relinquishment of the blocks vary from the absence of hydrocarbon presence, high risk with uncertain rewards and the viability of undertaking the exploration.
In some other cases like in Nigeria, OVL backed out as downstream investments attached to it imposed unsustainable financial burdens.
As for individual blocks, OVL wrote off $70 million of investments in an offshore deep-water block in Vietnam called Block 127 where it held 100% operatorship interest, while in Brazil the company sunk investments to the tune of $105 million in blocks BM-SEAL-4 and BM-BAR-1 in which it had a 25% PI. OVL and its joint venture partner Mittal Energy together did not find enough prospectivity in Nigerian deep-water block OPL 279 towards which they spent close to $160 million.
The company has also relinquished blocks in other geographies including Myanmar, Cuba and Libya and finds a stalemate in blocks in Iraq and Iran where past sanctions have affected the completion of the deals. Thirteen years after it was first awarded the contract for exploring the onshore oil block Block 8 in Iraq by the Saddam Hussein administration, the company has recently begun renegotiating the deal with Iraq in line with the new contractual regime instituted by the country after the war with the US. with improving relations between Tehran and the West, OVL is also eyeing the Farzad-B gas field in Iran in which it holds a 40% stake.
The relinquishment of blocks that yield no produce along with the stalling of projects in conflict zones like Egypt, Syria and Sudan have meant that hydrocarbon production in the last two financial years has been going down, though the company expects to reverse this trend this year. OVLs Sarraf, however, said that he expects to see a surge in production from this year with assets in Myanmar and Azerbaijan now under production.
A former director in the oil ministry said that ONGC really started acquiring global assets in a big way from the 2000s and is still learning how to pick the best assets. Global players like Shell and BP are generally conservative in making acquisitions. But as we have seen in certain deals like the Imperial acquisition in Russia and Syrian blocks, OVL paid a premium, the person said.
However, OVL has been lauded by analysts in recent times for some bold investments in countries like Mozambique and Brazil and is expected to book new reserves in some existing blocks in Sudan and Vietnam. Analysts also say that OVLs current strategy of acquiring stakes in producing blocks like Azerbaijan will help in overcome the shortfall in production.