ONGC Videsh has become a key vehicle for pursuing India’s energy security goal through acquisition of oil and gas assets abroad. The company?s acquisition activities saw an explosive growth in the past decade after the government put in place a special mechanism for granting expedited approval to OVL?s investment proposals, considering its critical significance in the national energy security matrix. With 34 projects in 15 countries, OVL is the second largest Indian company in terms of hydrocarbon reserves after ONGC, its parent company. OVL managing director Joeman Thomas discusses with Fe?s Noor Mohammad the company?s business plans:
Crude oil prices have surged in the international market in recent months. What is its impact on valuation of oil and gas assets?
Any valuation will reflect conditions in the commodity market. You cannot ignore the market. The seller would always insist on a valuation based on the current market price. However, buyer would like to pay on the basis of long-term price. In OVL, we take cognizance of the long-term price trend while conducting valuation of deals.
But how come OVL did not get right its pricing in the Imperial deal?
A lot has been written about the Imperial deal. We evaluated the deal during the middle of the year 2008 when oil price was on a steady rise. There was a gap between securing Cabinet nod and closing the deal. Oil prices crashed during this period.
Since Imperial Energy’s assets are in Russia, we had to seek approval of the anti-monopoly authority in that country for the deal. When oil prices crashed, we again went to the Cabinet. But we were asked to go ahead with the deal because when you buy a company which is listed on exchanges, you cannot back out.
What is important for people to understand is that such projects have life-cycle of 25 years. People should not judge the success or failure of a project on the basis of its performance in the initial years.
How is the cost economics of this business?
We have got our money back in four out of the nine producing assets that we have in places like Russia (Sakhalin), Vietnam, Sudan and Syria. Our annual production has crossed 9 million tonnes for the first time in the financial year 2010-11.
Meanwhile, our blocks in Myanmar and Venezuela (Carabobo) are under development and production is expected to start in 2013.
You have a block in Libya too. What is the impact of the unrest on your business in that country?
Yes, we have an exploration block in offshore Libya. We recalled our project manager from Libya on February 27. But we do not have an Indian staff in that country at the moment. Just 6-7 employees are there. They are locals.
We have completed seismic survey of the block. Now we are reprocessing those seismic data. For that, we do not need to go to Libya.
