ONGC Videsh Ltd, or OVL, the global arm of state-owned exploration giant Oil and Natural Gas Corp. Ltd, which is facing international wrath for investing in Africa’s civil war-ravaged Sudan, confirmed it had quietly exited its only hydrocarbon asset in the US, because it had anticipated a backlash in the West.
Specifically, the company had feared that the US could invoke the Alien Tort Claims Act, which allows “foreign victims of serious human rights abuse abroad to sue the perpetrators” in US courts.
As Mint reported on 29 June, OVL’s operations in Sudan have come under intense criticism from international groups, such as the Amnesty International, Genocide Intervention Network, or GIN, and Investors Against Genocide. GIN’s Sudan Divestment Task Force report has identified ONGC as one of the top four “highest offenders” indirectly contributing to the ongoing conflict in Sudan.
ONGC had previously taken a 10% stake in an offshore gas exploration project located near the Louisiana coast in the US through its Houston-based subsidiary, Sakhalin India, from US-based McAlester Fuel Co. in 2002.
But it exited its participating interest in the exploration and production asset in January 2003, a month before it acquired a 25% stake in Greater Nile Petroleum Operating Co. in Sudan from Canada’s Talisman Inc. for $720 million (about Rs3,450 crore then).
The other partners in the consortium are China National Petroleum Corp., or CNPC, (40%), Petronas Carigali Overseas Sdn BHD (30%) and Sudan National Oil Co. (5%).
Expanding ONGC’s Sudan operations in May 2004, OVL had acquired a 24.125% stake in Block 5A and a 23.5% stake in Block 5B operated by the White Nile Petroleum Operating Co. Ltd from Austria’s OMV Aktiengesellschaft for $134 million. OVL has invested around $1 billion in its hydrocarbon blocks in Sudan.
“We exited our stake in the US fearing the Alien Tort Claims Act. It was a very calculated move as one needs to be very careful. I am not saying that we will not take any stakes in the US but, the risks will have to be evaluated, given the current situation,” said a senior OVL executive who asked not to be named.
India consumes around 112 million tonnes (mt) of petroleum products a year. It is also the world’s fifth largest oil importer and around 78% of its energy needs are met through imports. With the international price of crude at around $140 per barrel, developing economies such as India and China are engaged in a race to acquire equity stakes in the hydrocarbon blocks overseas.
OVL registered a production of 8.802mt of oil and oil equivalent gas and earned a net profit of Rs2,397 crore on a turnover of Rs16,954 crore in 2007-08. It is present in 38 oil and gas projects in 18 countries across the world and has proven reserves of 1.166 billion barrels.
A senior ONGC executive, who didn’t want to be identified, claimed, without providing any specific evidence, that the US is trying to scuttle India’s chances of achieving energy security in Africa and elsewhere. He also claimed that the actions of Cindy McCain, the wife of Republican presidential candidate John McCain, who is a strong advocate of financial sanctions against Sudan for human rights abuses in Darfur and sold her mutual funds that had invested in OVL, should be viewed as supporting his claim.
Cindy McCain, wife of US Republican presidential candidate John McCain (Photo by: Kham/Reuters)
“Criticism such as these will not affect ONGC either on the financials or its image,” says a Mumbai-based oil and gas sector analyst who cited commercial reasons for not wanting to be identified. “One needs to understand that energy resources are found in difficult regions and one needs to be pragmatic enough to understand that energy security is the key.”
“We abide by United Nation’s sanctions and not by those of the US. Our assets are not even in Darfur, which is the conflict zone,” the ONGC executive said.
The Greater Nile Oil Project in Sudan is located in the Muglad Basin, around 700km south-west of the capital, Khartoum.
The Sudan conflict, which started in 2003, is believed to have killed nearly 300,000 people and displaced at least two million Sudanese from their homes.
According to the shareholding data available with the Bombay Stock Exchange, as on 31 March, foreign institutional investors, or FIIs, held nearly 8% stake in ONGC.
At current market price, the entire FII holding is valued at around $560 million. American Funds is the single largest FII investor in ONGC, holding 46,016,142 shares or a 2.14% stake.
Lison Joseph in Hyderabad contributed to this story.