It was an historic day for the Indian oil industry when the tanker Sea Falcon berthed at the southern port of Mangalore on 15 May. On board the very large crude carrier (VLCC) was 600,000 barrels of sweet Nile blend crude, representing the first fruits of the acquisition by ONGC Videsh (OVL) of a 25 per cent equity stake in Sudan’s greater Nile oil project (GNOP).
At $720 million, the March purchase of Talisman Energy’s interests in GNOP stands as OVL’s biggest regional acquisition. It also marked the start of a spending spree. In the six months since, the state-owned company has spent $115 million in acquiring stakes from Austria’s OMV in two more Sudanese blocks, signed farm-in agreements for two onshore exploration concessions in Libya and, most recently, finalised the exploration and development contract for block 24 in Syria.
As the recent burst of regional activity highlights, OVL is a company in a hurry. And it needs to be. The international arm of state-owned Oil & Natural Gas Corporation (ONGC) has been handed a daunting challenge. By 2010, it is aiming to increase its equity production to 400,000 barrels a day (b/d) from the current 260,000 b/d. Its target for 2025 is 1.3 million b/d.
The high targets reflect the growing concerns in New Delhi about India’s energy outlook. ‘[India’s] energy security is 30 per cent. This is a cause for worry and has to be addressed by drawing up long-term plans,’ says OVL managing director Atul Chandra. Worse, unless action is taken, the figure will fall substantially: Indian energy demand currently stands at 2.2 million b/d but is forecast to more than triple to 7.4 million b/d by 2025.
Being state-owned and a company with such a strategic mission have given OVL certain advantages. It enjoys the full support of the federal government, which has greatly assisted it in negotiating concessions. In addition, with New Delhi adopting a non-aligned foreign policy OVL has been given a free hand to go into any country it wants. ‘We look at what is commercially viable for us. We have our own mind and analysis. we will use our prudence,’ says Chandra.
Chandra takes issue with US policy that bans American oil companies from venturing into states such as Sudan, Libya and Iran, and attempts to dissuade others from filling the gap. ‘Coca Cola requires gum Arabic, which comes out of Sudan but is not banned by the US. Why should oil production be banned?’ he asks.
OVL’s independent streak was highlighted in late 2000 when it signed an exploration and development contract with Iraq’s Oil Exploration Company for the 9,000-square-kilometre block 8, adjacent to the Rumaila fields in the south. Despite regime change in Baghdad, OVL is confident the deal will be revalidated by the end of the year and is close to awarding a seismic survey contract for the block. ‘We deserve it. We hope to be the first IOC [international oil company] to start E&P [exploration and production] in Iraq,’ says Chandra.
Having spent almost $900 million in building up its presence in Sudan this year, OVL is understandably upbeat about prospects in the African state. ‘Sudan is one of the best-kept secrets of the oil industry. The media has created a scare about the civil unrest. We are optimistic about the peace process talks,’ he says.
The African state will remain a major focus of attention for OVL, which is looking to increase its Sudanese equity production to 100,000 b/d from 60,000 b/d over the coming two years. On GNOP, the Indian firm, along with its consortium partners, is planning to embark on a five-year drilling programme. The thrust will be on exploring blocks 1A, 2A and 4 and is aimed at increasing oil production to 300,000 barrels a day (b/d) from the current 260,000 b/d.
Exploration activity is set to increase across OVL’s entire regional portfolio. In Iran, where OVL began its Middle East activities in the early 1970s, the company and its two Indian partners are carrying out 3D seismic surveys in the Farsi 2 offshore block, in preparation for a four-well-drilling programme starting in late 2003. In Libya, the company is planning to drill its first exploration well in block NC 188 in mid-October.
Despite its intensive exploration programme, OVL remains on the lookout for further regional concerns. It has expressed strong interest in bidding for the three non-associated gas blocks being tendered by Saudi Arabia’s Petroleum & Mineral Resources Ministry in the southeast of the kingdom. It is also a member of one of the three groups formed to submit development plans for Project Kuwait, the landmark development that will see an IOC assist in doubling crude production capacity at five northern oil fields.
With demand for oil and gas set to grow exponentially in India, OVL is facing a challenging agenda over the next 20 years. But if it does manage to hit its targets, OVL is likely to have become one of the biggest Asian players in the international oil market. Certainly, the company’s ambitions show no sign of diminishing.
Says Chandra: ‘My plan is to acquire big IOCs and I am working towards it. By 2020, I would like to see OVL as one of the top 50 global companies in oil and gas.’
Ashok Dutta n