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OVL’s Angola bid may face boundary dispute risk

OVL’s Angola bid may face boundary dispute risk
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First Published: Mon, Jan 31 2011. 11 53 PM IST
Updated: Mon, Jan 31 2011. 11 53 PM IST
New Delhi: Despite the risk stemming from a territorial dispute between Angola and the Democratic Republic of Congo, state-owned ONGC Videsh Ltd (OVL) has gone ahead with its bid to acquire a 25% stake in an oil block owned by Exxon Mobil Corp.’s Angolan arm valued at around $2 billion (Rs 9,200 crore).
The company is confident that it will be able to ring-fence its proposed investments through safeguard clauses and a comfort letter from Sonangol, the state-owned hydrocarbon company of Angola.
According to the documents reviewed by Mint, Credit Suisse in an analysis has stated that the dispute may affect two or three fields towards the north and “may put at risk about 19 million metric barrels (over the lifespan of the field)”. Fugro Robertson Ltd is the technical consultant for the bid and Credit Suisse is the financial consultant.
While Credit Suisse declined to comment, a senior OVL official, who did not want to be identified, said, “There is a dispute with one of the portions of the block area. If we succeed, it can be dealt through appropriate clauses in the agreement.”
To be sure, the documents also state that “a side letter exists wherein Sonangol has agreed to give some protection to the contractor group for any future boundary dispute”.
This opportunity, code named “Project Desire”, has come India’s way with Exxon Mobil’s Angolan arm, Esso Exploration, and Total SA planning to exit from the deep-sea field named Block 31. While BP Plc. is the operator in the block with a 26.7% stake, Sonangol, Stateoil, Marathon and Total have participating interests of 20%, 13.3%, 10% and 5%, respectively.
“In case the bid submitted by OVL is successful, it would entitle OVL to a share of production, as per its stake, from the production of oil expected to commence during 2012. The planned production is estimated to be approximately 150,000 barrels of oil per day for the consortium at the peak phase,” former minister of state in the petroleum ministry Jitin Prasada had told the Lok Sabha on 9 December.
OVL is competing with Chinese firms for the stake. Indian state-owned firms such as OVL are locked in fierce competition for energy assets in Africa and South America with rivals, including China National Petroleum Corp., Sinopec Corp. and CNOOC Ltd.
While Exxon Mobil could not be contacted over the weekend, questions emailed to the embassy of the Democratic Republic of Congo in New Delhi and Angola’s consulate in Mumbai on Sunday remained unanswered. Questions emailed to the embassy of Angola in New Delhi bounced back.
“The bid is yet to be decided. These kind of processes take time,” said another OVL executive, who also requested anonymity.
“We have a capacity of two million barrels per day (in the oil field). We are producing 1.8 million barrels per day,” Angolan oil minister Jose Maria Botelho de Vasconcelos had said during his visit to Delhi in November to attend the Petrotech energy conference.
“The hunt for oil acreages will continue to intensify, especially in Africa. India will need to start getting a grip on the geopolitical risks to understand and gain access to the opportunities in Africa. The security of title is and will continue to be a significant risk for investors in Africa. India will need to take some bold and calculated risks as it steps into the disputed acreages in Angola,” said Gokul Chaudhri, partner at audit and consulting firm BMR Advisors. “These risks should be based on appropriate legal title due diligences, understanding of its political access in Angola and Congo, and ability to withstand protracted disputes and potential losses. All of this makes sense if the gains are worthy and material.”
India consumes 144 million tonnes (mt) of oil a year, with domestic production accounting for only 34 mt. Currently, 9 mt of India’s imports is sourced from Angola.
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First Published: Mon, Jan 31 2011. 11 53 PM IST