Do-or-die year for India's ONGC Videsh

David Knott
London
[email protected]

India's Oil & Natural Gas Corp. formed ONGC Videsh Ltd. (OVL) more than 10 years ago for exploration and development outside India.

Yet no project OVL has been involved in has struck oil. Fiscal year 1998-99 is expected to be a watershed for OVL: its exploration target in that period is 6 million metric tons of equity oil.

OVL has exploration assets in Algeria, Australia, Azerbaijan, Kazakh- stan, Iraq, and Sudan and hopes to acquire new interests in the U.S., Russia, and Sudan.

Atul Chandra, managing director of OVL, said, "Any oil company that wants to grow must find new reserves at least equal to its production. First, it tries to strike oil at home, but the balance must come from outside. That is why OVL exists."

Pressure

The pressure on OVL is immense. ONGC's crude oil production in India is declining steadily, from 31.89 million tons in fiscal 1995-96 to 29.21 million tons in fiscal 1996-97 and 28.25 million tons in fiscal 1997-98.

ONGC has not made any noteworthy discovery at home in the last decade outside producing basins. And under the New Exploration Licensing Policy (NELP) announced in February 1997, ONGC has to compete with private companies for exploration licenses in India.

Despite the odds, Chandra, who took charge in December 1995, is optimistic. He restructured the board for faster decision-making and says the company has received several foreign offers, which are currently under evaluation.

OVL's main asset is a pair of gas accumulations off Viet Nam, found by a venture including BP Exploration Co. Ltd. and Norway's Statoil AS. OVL has a 55% working interest in the venture.

When BP confirmed Lan Tay and Lan Do finds, it tentatively slated first gas delivery for 1998 (OGJ, Sept. 26, 1994, p. 40). The fields have estimated reserves of 2 tcf of gas.

OVL can only hope the protracted Vietnamese gas price negotiations bear fruit soon. The hold-up is typical of the bad luck that has dogged the company to date.

The predecessor to OVL was Hydrocarbons India Limited (HIL), formed in the 1960s. It started well by discovering the 3.5 million-metric-ton reserve Raksh Rostum oil field in Iran in the 1960s and negotiated a 16.5% stake in that find.

Yet HIL had to pack up and leave in 1979 when Iran nationalized its oil fields. Half-hearted forays into Thailand and Malaysia bore little fruit, and by 1985, the company had become almost superfluous.

Plum-picking

By then, most ventures outside India were handled by ONGC, and even after OVL was formed, the parent company continued to pick plum projects.

OVL's portfolio has yet to take off. The Viet Nam venture appears to be vital for the company's survival; meanwhile, it is trying to farm out stakes in overseas acquisitions to generate cash.

Chandra sees hope in ONGC's recent increase of OVL's equity base from 300 million rupees to 1 billion rupees (from $7 million to $24 million). This was thought essential for another foray into acquisitions and further exploration work.

Chandra sees another lifeline in a suggestion by a government working party on petroleum that OVL be owned 50% by the state and 50% by foreign oil companies: "However, the issue has not yet come up for debate."