India needs a sustained supply of oil and gas to support its growth ambitions. With limited resources at home (for example, crude production is just 20% of requirement), the country needs assured access to energy assets abroad. That is where the role of OVL, a 100% subsidiary of ONGC, assumes significance. The company is spearheading
India?s campaign for acquisition of oil and gas assets overseas. Despite its recent setbacks in countries like Syria and Sudan, due to the volatile political situations there, the company?s acquisition strategy remains intact. DK Sarraf, managing director of OVL, discusses with FE?s Pranav Nambiar the company?s business plans. Excerpts:
Do you think that Indian companies are not aggressive enough in acquiring assets overseas?
We are actively looking for good overseas assets and our portfolio clearly shows this. As of now, we are present in 32 projects across16 countries. We are producing in 11 countries, including Russia, Vietnam, Sudan, Brazil and Colombia. Having said that, we cannot be over-aggressive as we have to create value for shareholders in each of our overseas acquisition. However, we have been reasonably successful in acquisitions, more particularly in recent years.
OVL?s production numbers declined in 2012-13. Any cause for worry here?
Yes, our production declined by 17% to 7.26 mmtoe (million metric tonnes of oil equivalent) because of geo-political problems in some trouble spots like Syria and South Sudan where our production was hit. However, we anticipate that by the end this financial year our production rate would be back to the level of FY?12 end. This is expected to be achieved with an increase in production in South Sudan to normal levels despite tensions, production kicking off in blocks A1 and A3 of Myanmar, and also with the second phase of development of the BC 10 block in Brazil expected to finish later this year. We also hope to ramp up production from the Carabobo 1 block in Venezuela. I would say that the worst is behind us?with the persistent efforts of the teams and the support of the host governments, we have already reversed the trend and would see higher production this year onwards.
Going forward, as per the Perspective Plan?2030 of the ONGC group, we aim our production to increase to 20 mmtoe by 2017-18 and 60 mmtoe by 2029-30?an eight-fold increase over 17 years, unprecedented in the E&P industry. Today, overseas production contributes about 15% to ONGC group output, which would rise to about 45% by 2029-30. We have initiated action on several fronts to achieve these ambitious targets.
In which geographies are you now finding opportunities?
We are eyeing opportunities in several geographies across the world. More notably, East Africa has become a hot spot with huge gas discoveries in Mozambique and Tanzania. We have already announced acquisition of a 10% stake in Area 1 of Mozambique for a consideration of $2.275 billion along with Oil India. Other countries in Africa are also of interest. Brazil has also emerged a country with significant proven hydrocarbon reserves as well as a potential place for exploration. Some of our recent buys in countries like Azerbaijan and Mozambique demonstrate how we have diversified our portfolio. We are also studying the potential for acquiring exploration positions in neighbouring countries like Sri Lanka and Myanmar, which will hold auctions soon. Recently, we were allotted two exploration blocks in Bangladesh. The USA and Canada also offer attractive investment opportunities in shale gas, shale oil and oil sands.
Then why has OVL not made any big investments in shale assets when companies like RIL and GAIL are betting big on shale?
Each company has its own vision, strategy, circumstances and linkages to its investments elsewhere globally. All these are factored in while deciding where and when a company would make investment. We are going as per our own strategy. It is not that we are not looking at assets in the USA; we are doing our due diligence on some of LNG opportunities in the USA and would decide on them at an appropriate time.
As for Canada, none of the Indian companies has so far made significant investment in Canada. Here again, we are looking at some oil sand assets.
OVL and oil ministry officials recently met their counterparts in Iraq. What are the details?
We already have an exploration acreage, Block 8, in Iraq which was allotted to us by the previous regime. This is a very perspective block surrounded by producing fields. The current regime in Iraq wants us to re-negotiate the contract for the block so as to conform to the structure of the recent exploration contracts awarded by it. We are initiating the renegotiation. More importantly, the Iraqi government has agreed to give us three discovered blocks, called as middle-Furat blocks. This is quite encouraging and we would look into the data and start discussion with their authorities. Further, Iraq has invited expressions of interest for the development of a big discovered field?Nasaria field, coupled with the construction of a refinery. It is an attractive opportunity and we have qualified to participate in the bidding.
Any plans to carve out OVL as a separate entity from ONGC or list the company?
I do not really know what is meant by carving out as a separate entity. OVL is already a separate entity?a 100% subsidiary of ONGC. The financial and manpower support which OVL gets from the parent company, ONGC, is crucial for the growth of OVL. As for listing, it is a commercial and strategic decision of ONGC?whether to list OVL and, if yes, when. However, I personally feel that ONGC needs to wait before it takes a decision to list OVL. OVL production has declined in recent years but as I just said the worst is over. We have already made some good acquisitions and are in the process of making some more? which would create further value for OVL. It is preferable to first create more value and then divest so as to optimise the divestment value. Also, ONGC is a debt-free company and can support OVL?s acquisitions by debt funding before divesting its partial stake in it. There is no urgency to list for value creation.
Any update on Imperial?
Reserves-in-place that we estimated do exist; but we are not able to produce because they are in impermeable locations i.e. tight reserves. We have been able to find analogies with shale oil where fraccing technology and horizontal drilling have been used. Shale-like structures are present at Imperial. We are in discussion with some international companies which have these technologies, to customise the technologies to Imperial?s fields. A tender is already under process. Pilot wells will be drilled and once they are successful, we will decide on applying the technology on a full scale. To ensure their undiluted commitment, we may offer to them a share in the profits as well. The tender is expected to be finalised by August-end.