OVL looks to sell equity in Vietnam oil blocks

ONGC Videsh Ltd. (OVL), the overseas arm of India's state-owned Oil & Natural Gas Corp., plans to sell 30-40% equity in each of two oil blocks in Vietnam to share the risks and drilling costs. OVL owns 100% in the two deepwater exploration blocks.

Shirish Nadkarni
OGJ Correspondent

MUMBAI, May 29 -- ONGC Videsh Ltd. (OVL), the overseas arm of India's state-owned Oil & Natural Gas Corp., plans to sell 30-40% equity in each of two oil blocks in Vietnam to share the risks and drilling costs. OVL owns 100% in the two deepwater exploration blocks.

"There is a proposal to sell a portion of the stake in Blocks 127 and 128 in the Phu Khanh basin that we won in 2006, because the costs of drilling have gone up substantially," a senior OVL official said. "However, we have not yet determined whether we want cash or a swap agreement. Nor has a buyer been finalized."

The cost of data acquisition and drilling in Block 127 is expected to go up almost three times to $123 million, up from the earlier estimated $42 million. For the smaller Block 128, the cost is expected to rise more than two-fold to $77 million from the earlier forecast of $31 million.

OVL has already committed to spending $34 million in the second and third phases of exploration on both the blocks over and above the investment committed for the first phase. Drilling is currently under way on both blocks.

"These projected costs are also likely to have gone up substantially," said the ONGC official. "Drilling costs have risen sharply over the last year as the price of crude oil has more than doubled in the last 18 months."

The steep rise in the global price of crude oil has resulted in a rush to secure equipment such as drilling rigs and seismic vessels, as well as trained manpower—all of which are in short supply. This has caused exploration budgets to skyrocket.

OVL also holds a 45% stake in Block 06.1 off Vietnam, on which gas has been discovered. BP Exploration Operating Co. is operator of the block and owns 35%, while Petrovietnam, the national oil company of Vietnam, holds 20%.

OVL sources revealed that the company is likely to relinquish the Najwat Najem oil block in Qatar after it discovered that reserves in the block are low and not commercially viable. OVL had signed an agreement with the Qatar government in 2005 to appraise the Najwat Najem structure in which oil had been discovered.

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