FE Editorial From Russia

Written by The Financial Express | Updated: Aug 29 2008, 02:56am hrs
The success of ONGC Videsh Ltd (OVL) in acquiring Imperial Energy, with oil blocks in Russia and Kazakhstan, beating off competition from Chinese oil giant Sinopec, is good news carrying a few caveats. There is some reason to be concerned about large amounts of money being invested to secure oil assets abroad, while exploration & production efforts flounder at home despite the alleged success stories of the new exploration & licensing policy. The focus on foreign oil assets has been so prominent that OVL, the flagship company, had secured 22.24 million tonnes of oil and oil equivalent of gas (O & OEG) during the 10th Plan, which is more than double the targeted number. Apparently, this success has goaded the government into focusing more on oil assets abroad than within the country, where vast areas still remain unexplored. In fact, numbers show that while the exploration & production outlay for ONGC has been increased by 57% to Rs 75,984 crore in the 11th Plan, that of OVL has been raised more than six times to Rs 45,333 crore. This can only further dampen the enthusiasm for domestic exploration & production. The number of exploratory and development wells sunk in the country was only 355 in 2007-08, compared with 535 almost two decades ago in 1990-91. However, by the governments own estimates, crude oil production from overseas assets is expected to remain largely stable at around 7 million tonnes over the 11th Plan period despite large investments, perhaps because there is a time lag of around six to seven years between investment and output. The growth of natural gas output from overseas assets is not significantly different.

The enthusiasm for collating oil assets in unstable regions with highly unstable governments can also backfirethis has been the experience in some countries. Though Indian public sector companies have now secured oil assets in around 20 countries, oil supplies have sometimes been disrupted for various reasons. For instance, while Myanmar decided that the gas produced would be sold to China, Egypt claims first priority on the finds there. Russia is acting like a bully in Central Asia. OVL must keep that in mind.