The global player

Print edition : January 31, 2003

ONGC's oil facilities at Sakhalin, Russia. - ONGC

ONGC Videsh has marked several global successes, and it now has nine international projects going. Its quest is to secure India's energy security.

ONGC Videsh Limited (OVL) is walking tall. In 1996 OVL had an equity base of Rs.30 crores and was incurring losses. Today it has nine major ongoing projects in countries such as Vietnam, Russia, Iraq, Iran, Sudan and Myanmar, Its pursuit today is to secure equity oil and gas from abroad to ensure India's energy security.

OVL's first project abroad, which went on stream on December 18, 2002, is the offshore project in Vietnam. Its "key" project at Sakhalin, a group of remote islands off the coast of Russia, will go on stream in 2005 with the production of oil.

Atul Chandra, Managing Director of OVL, told Frontline: "Two years ago we had one project. Now we have nine... If we put all these projects together and prepare a production profile, OVL alone will be producing more than 13 to 15 million tonnes of oil a year by 2010 and the net cash flows will be of the order of $1billion a year."

Industry observers acknowledge that OVL has played "an admirable role" at a time when the gap between the demand for petroleum products and the indigenous production of crude oil is widening in the country. Against a demand of 108 million tonnes of crude oil, the country now produces only 32 million tonnes. This means indigenous production meets only 30 per cent of the demand, while the rest of it is met through imports. Even to be able to maintain this 30 per cent level, by 2025, when the demand will touch 370 million tonnes, India should produce annually at least 110 million tonnes.

"To maintain this 30 per cent level, we need to add 60 million tonnes of oil every year. We thought the only way to get this 60 million tonnes was to get it from outside India as equity oil. Our mission, therefore, is to get this 60 million tonnes every year by 2025," says Atul Chandra.

The report of the Group on India Hydrocarbon Vision - 2025, a ministerial group set up by the Prime Minister to focus on long-term energy security, suggested several directions for the indigenous oil industry. These included a focussed approach to get equity oil and gas; building relationships with international oil companies; leveraging India's buying power; and the deregulation of exploration and production. OVL decided to follow these directions.

In its approach towards equity oil, OVL focussed on the geography factor. It prepared a nine-block matrix with emphasis on the "prospectivity'' of the country or region, and OVL's ability to compete there. The countries that came under OVL's consideration included Vietnam, Russia, Iraq, Iran, Libya, Sudan, Indonesia, and the United States. OVL projects are under way in these countries. It has also built up relationships with national and international oil companies. In order to leverage India's buying power by integrating upstream and downstream oil industries, it has teamed with indigenous companies such as Indian Oil Corporation (IOC), Oil India Limited (OIL) and Gas Authority of India Limited (GAIL) in projects abroad. It is partnering with multinational companies such as British Petroleum, Exxon-Mobil, British Gas, and Sodeco of Japan in overseas projects.

On December 26, 2002, a consortium comprising OVL, IOC and OIL signed a contract with the National Iranian Oil Corporation for the exploration of the Farsi block in the Persian Gulf. In Iraq, it is negotiating a project along with Reliance Industries Limited. GAIL is its partner for a project in Myanmar that has been finalised.

Among its projects, the most notable one is Sakhalin-1 (offshore) in Russia. OVL's investment in the project, including the carry loan amount up to 2005, is estimated at $1.7 billion. This is the largest single investment ever made by an Indian corporate. OVL has acquired a 20 per cent participating interest in the project. It is involved in the project through a consortium arrangement with Exxon-Mobil, Sodeco and the Russian companies RN Astra and SMNG. Exxon-Mobil is the operator.

When Japanese Prime Minister Junichiro Koizumi visited Russia, he expressed Japan's keenness to lay a pipeline to transport gas from Sakhalin to Japan and this was agreed upon. This pipeline will be the first such facility for Japan.

Atul Chandra said: "We are going to start oil production from Sakhalin in 2005. We will be producing 2.5 lakh barrels a day or 12.5 million tonnes a year. Out of this, during the first six or seven years, 40 per cent will be ours. This is about five million tonnes a year." This arrangement was arrived at because India gave Russia a loan for the project and the latter has to repay it in the first six to seven years. "So their share of the oil is ours," he said. After that, India's share becomes half, that is, 2.5 million tonnes a year. The oil is bonny light and sweet, similar to Nigerian crude. It sells for a dollar more a barrel than normal oil.

Although Sakhalin becomes ice-bound in winter, Atul Chandra is confident that this will not pose a challenge to oil production. Exxon-Mobil has been operating in Alaska under similar conditions. An offshore platform has been towed in from Tudor Bay, Alaska, to Sakhalin.

Gas production will start in 2008. The gas reserves in Sakhalin are estimated at 20 trillion cu ft.

The board of directors of OVL has been empowered by the Union government to approve overseas projects. An authorised committee can ratify investments up to a few billion dollars. The recommendations go to the Union Cabinet for approval, which typically clears proposals within a month. Chandra says: "I got approval for the Sakhalin investment of $1.75 billion in 16 days."

OVL created a wholly owned subsidiary called Sakhalin India Inc. based in Houston, U.S., in April 2002. Observers see it as an important step for ONGC and OVL to access state-of-the-art technology.

The partners involved in the offshore project in Vietnam are OVL, British Petroleum and PetroVietnam. The gas produced, about three billion cubic metres a year, will be used to generate 40 per cent of Vietnam's power requirements. OVL has made an investment of Rs.980 crores in the project.

A third OVL project is in Iraq - a large exploration block of about 10,000 sq km in the western desert region of Abu Khaima. Atul Chandra's "personal assessment" is that it will yield at least two million barrels of oil a day. OVL has also taken up, along with Reliance Industries Limited, a project in southern Iraq.

A fourth project is off Myanmar. OVL is participating in the exploration along with Daewoo International Corporation, GAIL and Korea Gas Corporation (KOGAS) of South Korea. OVL's partners and consultants feel that the gas reserves could even be 14 to 16 trillion cubic feet.

In Libya, OVL signed an agreement in August 22, 2002 with the Turkish Petroleum Overseas Company to acquire 49 per cent stake in two onland oil and gas exploration blocks. In the U.S., OVL has started exploring in the shallow waters of the Gulf of Mexico; Sakhalin India Limited has signed an agreement with McAlester Fuel Company of the U.S. to take a 10 per cent stake in an offshore gas exploration block on the Louisiana coast.

In the Greater Nile project in the Muglad basin in Sudan, its partners are China National Petroleum Corporation and Malaysia's Petronas. Industry sources called the exploration blocks "a gold mine" which can pay off in three to four years.

OVL is looking at many other properties where negotiations have reached an advanced stage. These include two in Kazakhstan (one is an exploration block in the Caspian Sea), a number of blocks in Sudan where oil has already been discovered and more blocks in Russia.

But Atul Chandra says OVL does not want to spread its resources too thin. The first priority is to strengthen the organisation further in the next three years and "consolidate it like an international company". The second priority is to look at small companies for acquisition.

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