OVL charts revival path for Imperial energy as output falls drastically

Written by Siddhartha P Saikia | New Delhi | Updated: Oct 13 2014, 08:19am hrs
State-run ONGC Videsh is back to the drawing board for redoing the entire exploration programme for the grossly under-performing Imperial Energy, which it bought in 2009 for a whopping $2.1 billion.

Imperial Energys output has dropped drastically to 7,000 barrels per day (bpd) against the pre-acquisition forecast of 80,000 bpd, making it OVLs worst buy.

Having spent about $300 million on the asset since its acquisition, OVL, sources said, has now started a cost-cutting exercise to break even. It has adopted a two-step strategy to inject a new lease of life into Tomsk-Russia-based Imperial Energy, said a government official pricy to the development.

First, it is making all possible efforts, including cutting down headcount from about 650 staff now and bringing down operating costs.

Second, it is reviewing both conventional and unconventional data across its acreages in the Tomsk region of Western Siberia, which can lead to exploitation of economically viable hydrocarbon. This means OVL could evolve an alternative procedure for making the project economically viable.

The initiative follows oil minister Dharmendra Pradhan asking the firm to draw up a revival strategy. The output is going down because we are not drilling wells. If we do that, it can go upto 15,000 bpd. But the problem is that the cost incurred would not be recovered, the official explained.

Imperial Energy is trying to explore the Bazhenov shale formation, said to be the worlds single biggest reserve. It is expected to do for Russia what Bakken Shale did for the US. The results are expected by December. Imperial is making efforts to procure cutting-edge technologies and a tech partner for development of shale formation.

Sooner or later, Bazhenov shale has to break even, the official quoted said.

OVL's acquisition of Imperial Energy was given the go-ahead by the Cabinet Committee on Economic Affairs (CCEA) in August 2008 and the transaction was completed in January 2009.

Global consultancy firm DeGolyer & McNaughton had certified Imperial's reserves. However, the Russian government alerted that it was inflated. Initial estimates pegged reserves at over 125 million tonne, which was reduced to 110 million tonne in 2011.

The Parliamentary Standing Committee has also questioned ONGC not being cautious when the seller painted a very rosy picture, especially when the Russian ministry had expressed doubts about the reserves.

The company did not take due precaution before participating in this huge capital-intensive project and also did not resolve the reservations expressed by the Russian resources ministry regarding the inflated reserve position declared by Imperial, the committee had said.

Imperial Energys interests comprise 14 blocks and all licence interests are 100% owned by Imperial. Its total licensed area in the Tomsk region is nearly 12,668.8 square kilometers, and it has the second largest acreage position after Tomskneft.

Imperial has its own infrastructure, which includes a 336-km pipeline network, oil treatment facilities (at Snezhnoye, Maiskoye and Kiev Eganskoye fields) and custody transfer facilities at Luginetskoye and Zavyalovo flowing oil directly to the Transneft pipeline system.

OVL produced 8.36 mt oil and oil equivalent gas in 2013-14 against 0.252 mt a decade ago. The explorer's cumulative investment up to March 31, 2014 has crossed $ 22 billion. It has stakes in 33 oil and gas projects in 16 countries. In under two years in the past, OVL has made new acquisitions to the tune of $4 billion, including 2.72% in the Azeri, Chirag and the deepwater portion of Guneshli Fields in the Azerbaijan, 2.36% in the Baku-Tbilisi-Ceyhan pipeline, an additional 12% in Block BC-10 at Campos Basin in Brazil, 6% in the Rovuma Area 1 offshore block in Mozambique from Videocon and a direct 10% stake in the same Rovuma Area 1 from Anadarko.