Mumbai / New Delhi: Energy heavyweights Reliance Industries Ltd (RIL) and ONGC Videsh Ltd (OVL) plan to jointly bid for oil exploration and production blocks in Venezuela, forming an alliance that may be expanded to include Indian Oil Corp. Ltd, according to an industry executive close to the development.
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State-owned Indian Oil has been approached to join the public-private consortium to bid for blocks in the Carabobo area of Venezuela’s Orinoco basin, said the executive, who didn’t want to be named. OVL is the wholly owned overseas investment arm of state-run Oil and Natural Gas Corp. (ONGC).
“OVL and RIL are forming a consortium to bid for the oil blocks in Carabobo region. Discussions are still under way on whether the collaboration will take the form of a joint venture or an incorporated company,” the executive said.
The Venezuelan government will retain a 60% stake in the three Carabobo projects—each valued at $15-20 billion—and is looking to sell the remaining 40% through an international bidding process.
“We will be bidding in at least one block and may be more. Those details are being worked out,” the industry executive added.
Indian Oil has received feelers to be a part of the consortium, said a senior executive in the state-run oil refiner and marketeer. “We have told them that we will be interested if we are given some stake,” said the executive, who also didn’t want to be named. “We are looking at the proposal and if we go ahead, we will be taking along Oil India Ltd (OIL), with whom we have an understanding for going together for overseas opportunities.”
In December 2005, the Indian government provided for quick clearance of overseas investment proposals made by OIL, and Indian Oil together.
An emailed questionnaire sent to spokesmen for Mukesh Ambani-controlled RIL, the country’s most valuable firm, on Friday remained unanswered. OVL chairman R.S. Sharma and managing director R.S. Butola declined comment.
A senior ONGC executive, without giving details, confirmed the firm’s “interest in jointly acquiring these projects” in Venezuela.
OVL already has a joint venture relationship with Mittal Investment Sarl, steel baron L.N. Mittal’s investment vehicle. It is unconnected with Arcelor-Mittal.
“OVL will need RIL’s execution abilities while RIL benefits by having a public sector company in the alliance that assures them of a diplomatic and government backing,” a Mumbai-based sector analyst with the Indian arm of a foreign brokerage said about the likely tie-up. He didn’t want to be named. Also, the oil could assure feedstock supply to RIL’s refineries in Jamnagar, Gujarat.
The government of Venezuela is keen on certifying and developing the heavy crude oil reserves of Orinoco. To develop these blocks as integrated production and refining facilities, the foreign partners will have to plan, fund and set up oil pumping and upgradation units.
These units will improve the quality of the heavy crude in some of the wells and blend it with higher quality crude in the other wells. RIL has the expertise to do this: Its two refineries in Jamnagar can process the sourest of crudes.
Germany’s Deutsche Bank AG has been appointed financial adviser to the consortium that is taking shape, said the industry executive. An independent technical analysis firm that confirms the quality and quantity of hydrocarbon reservoirs has also been hired, the executive said.
A bank official with knowledge of the agreement confirmed that it was advising RIL and OVL on the projects. A Deutsche Bank spokesman declined comment.
The consortium will face stiff competition. A 9 March story in Oil and Gas Journal said the Carabobo projects had attracted interest from global companies such as BP Plc. of Britain, Chevron Corp. of the US, China National Petroleum Corp., China Petrochemical Corp., Eni SpA of Italy, Petrobras of Brazil, Petroleum Nasional Bhd. or Petronas, of Malaysia, and Venezuela’s Suelopetrol, among others.
The area contains 272 billion barrels of recoverable reserves besides 80 billion barrels of proven reserves, and needs foreign investors to pump in money to share the huge financial burden needed to extract and process the oil—a bill that Venezuelan government can’t foot alone, especially when oil prices are subdued and refining margins have shrunk.
How the Indian firms arrange for the funding is to be seen. RIL has already sought approval from India’s upstream regulator, the Director General of Hydrocarbons, to invest an additional $5.91 billion in nine more gas discoveries off India’s eastern coast in the gas-rich Krishna Godavari basin and link them to the two existing ones.
On 25 December 25, Mint had reported that between October and December, RIL had received a fund infusion of almost Rs29,000 crore through conversion of equity warrants by promoters and debt from the market. At the time, analysts and a company executive had noted that one of the possible reasons was to accumulate cash for future projects.