OVL to exit Kazakhstan's unviable Satpayev oil block

NEW DELHI: ONGC Videsh Ltd, the overseas investment arm of state-owned Oil and Natural Gas Corp (ONGC), plans to exit Kazakhstan's Satpayev block after it could not find commercially exploitable oil, an official said Tuesday.

OVL had in April 2011 bought 25 per cent of Satpayev oil block. It paid USD 13 million as a signing amount to Kazakhstan and an additional USD 80 million as a one-time assignment fee to JSC NC Kazmunaigas (KMG), the national oil company of Central Asian nation.

Satpayev was OVL'S entry into hydrocarbon-rich Kazakhstan. But its exploration campaign hasn't met with much success, the official said. OVL, he said, drilled the committed two exploration wells on the block without any commercial hydrocarbon success.

As the prominent prospects in the block have been probed without any commercial hydrocarbon discovery, OVL decided to exit from the Satpayav contract after the expiry of the first extension of exploration phase on June 15 this year, he added. The company had sent almost USD 300 million (about Rs 1730 crore) on the block so far. Satpayev exploration block, located in the Kazakhstan sector of the North Caspian Sea, covers an area of 1,481 square kilometers at a water depth of 4-9 meters.

OVL lured into taking a stake in the block as it is situ- ated in close proximity to major discoveries in the North Caspian Sea. It was said to have two prospective areas that hold an estimated 256 million tonnes of oil and natural gas resources. It lies near four major discoveries.

The company paid for KMG'S share of expenditure during the exploration and appraisal phase of the project.

The Kazakhstan government had in June 2010 awarded the Satpayev block to KMG, which remains the operator, with a 75 per cent participating interest. OVL got in the project in almost a year later.

At the time of the signing of the contract to take 25 per cent interest in the block, OVL had committed a minimum exploration investment of USD 165 million and an additional optional expenditure of USD 235 million in the project.

This was based on OVL'S assessment of a peak output of 287,000 barrels per day from the Satpayev and Satpayev Vostochni (East) structures.

Delays and cost overruns have dogged Kazakhstan's efforts to expand offshore production of oil and gas. OVL had planned to drill two exploration wells on Satpayev in 2014 and 2015 but the delivery of a drill rig delayed and drilling started only in July 2015.

The official said OVL had an option to raise its stake by a further 10 per cent in case of a commercial discovery, which has eluded the company.

With its exit from Satpayev block, OVL would now have stakes in 40 projects in 19 countries like Vietnam, Myanmar, Russia, Syria, Egypt, Libya, Nigeria, Sudan, Brazil, Colombia, Venezuela and Cuba.

OVL had been seeking access to Kazakhstan since 1995 and signed an initial agreement with Kazmunaigas in February 2005, for cooperation in the hydrocarbon sector.

At that time, Kazakhstan identified the Satpayev and Makhambet blocks in the Caspian Sea as acreages in which a 50 per cent stake in either could be given to OVL.

However, in 2007, it reduced the stake on offer to 25 per cent on the condition that OVL teamed up with steel baron Lakshmi N Mittal, who has steel plants in that country.

The initial agreement for OVL and its partner Mittal Investment Sarl to pick up a 25 per cent stake in Satpayev was signed during Kazakhstan President Nursultan Nazarbayev's state visit to India in January 2009.