OVL PRO­POSES FUND FOR FOR­EIGN AC­QUI­SI­TIONS

SUB­MITS PRO­POSAL TO PE­TRO­LEUM MIN­ISTRY

Business Standard - - FRONT PAGE - SHINE JA­COB

With in­ter­na­tional crude oil prices ris­ing, Oil and Nat­u­ral Gas Cor­po­ra­tion (ONGC) Videsh has knocked on the gov­ern­ment’s doors to cre­ate a sov­er­eign wealth fund,

such as that of China, Japan and Korea, through which In­dian com­pa­nies can fund ac­qui­si­tion of oil blocks abroad. The over­seas sub­sidiary of ONGC has sub­mit­ted the pro­posal to the pe­tro­leum min­istry. The pro­posed fund could fi­nance com­pa­nies such as OVL and Oil In­dia to ac­quire more as­sets abroad, so that at least 5 per cent of the coun­try's oil im­ports can be from In­dian-owned oil as­sets. "We have ap­proached the min­istry. This comes as the com­pany's ca­pa­bil­ity to fund over­seas ac­qui­si­tions is con­strained since its par­ent com­pany ONGC's bal­ance sheet is un­der stress," said a source. ONGC has funded the early phase of OVL's ac­qui­si­tions. At present, ONGC has a net debt of around ~140 bil­lion. OVL has pres­ence in 20 coun­tries. SHINE JA­COB writes

With in­ter­na­tional crude oil prices see­ing a surge, ONGC Videsh has ap­pealed to the Cen­tre to cre­ate a sov­er­eign wealth fund like that of China, Japan and Korea through which In­dian com­pa­nies can fund ac­qui­si­tion of oil blocks abroad.

The over­seas sub­sidiary of Oil and Nat­u­ral Gas Cor­po­ra­tion (ONGC) has sub­mit­ted the pro­posal to the pe­tro­leum min­istry.

The pro­posed fund could fi­nance com­pa­nies like OVL and Oil In­dia to ac­quire more as­sets abroad so that at least 5 per cent of the coun­try’s oil im­ports can be from In­dia-owned oil as­sets. “We have ap­proached the min­istry in this re­gard. This comes as the com­pany’s ca­pa­bil­ity to fund over­seas ac­qui­si­tions is con­strained since its par­ent com­pany ONGC's bal­ance sheet is un­der stress,” said a per­son close to the de­vel­op­ment.

Early phase of OVL’s ac­qui­si­tions have been funded by ONGC. ONGC was a zero debt com­pany but now, it has a net debt of around ~140 bil­lion.

OVL has pres­ence in 20 coun­tries across 41 projects – with re­serves of 711 mil­lion met­ric tonne of oil equiv­a­lent (MMToE) – and has so far in­vested $28 bil­lion in its blocks abroad. Though ONGC was a zero-debt com­pany at a stand­alone level till last fi­nan­cial year, it had to bor­row ~250 bil­lion to fund the ac­qui­si­tion of gov­ern­ment’s 51.1 per cent stake in Hin­dus­tan Pe­tro­leum Cor­po­ra­tion (HPCL). It had ear­lier also bought GSPC’s stake in the KG basin block for ~77.38 bil­lion.

“The ac­qui­si­tion of HPCL stake has cre­ated a lot of syn­ergy in our busi­ness by in­creas­ing our pres­ence in up­stream, re­fin­ing and mar­ket­ing. HPCL's mar­ket­ing pres­ence has also helped our sub­sidiary Man­ga­lore Re­finer­ies and Petro­chem­i­cals (MRPL), which was a stand­alone re­fin­ery,” said Sub­hash Kumar, di­rec­tor (fi­nance) of ONGC, at a late evening press con­fer­ence af­ter the com­pany’s an­nual gen­eral meet­ing on Fri­day. How­ever, the ac­qui­si­tion has added stress to the com­pany's fi­nances.

OVL’s turnover, too, de­clined 53 per cent from Rs 222.24 bil­lion in FY14 to Rs 104.18 bil­lion in 2017-18, mostly ow­ing to the lower prices dur­ing the time pe­riod. This is de­spite the com­pany post­ing a com­pound an­nual growth rate of 14 per cent in pro­duc­tion dur­ing the last five years. “With ONGC's bal­ance sheet un­der stress, OVL’s ca­pa­bil­ity to fund in­ter­na­tional ac­qui­si­tions is go­ing to be squeezed every day. Cre­ation of a sov­er­eign wealth fund is an ideal way to get over this and the un­cer­tainty over oil and gas loom­ing in In­dia,” said an­other of­fi­cial on con­di­tion of anonymity. OVL's pro­duc­tion in­creased from 8.36 MMToE in FY14 to 14.16 MMToE in 2017-18.

Mean­while, OVL said the is­sue be­tween a con­sor­tium of com­pa­nies in the Sakhalin-1 project and Rus­sian en­ergy giant Ros­neft over shar­ing of gas has been sorted out through an out-of-court set­tle­ment by which $230 mil­lion was paid to Ros­neft. The dis­pute was over the in­ter-link­ing of North­ern Chayvo oil­field, con­trolled by Ros­neft.

In the Sakhalin-1 project, op­er­a­tor ExxonMo­bil owns 30 per cent in the project. Ros­neft and ONGC con­trol 20 per cent each while Ja­panese con­sor­tium Sodeco has 30 per cent.

Source: Com­pany

*MMtoe: mil­lion met­ric tonnes of oil equiv­a­lent

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