×
Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday
×

Ourview | A good geopolitical investment

Ourview | A good geopolitical investment
Comment E-mail Print Share
First Published: Mon, Oct 17 2011. 10 25 PM IST

File photo of a drilling rig at a field in Sudan in which ONGC has a stake (Bloomberg)
File photo of a drilling rig at a field in Sudan in which ONGC has a stake (Bloomberg)
Updated: Mon, Oct 17 2011. 10 25 PM IST
India’s quest for oil and gas is no ordinary business endeavour. The chase, more often than not, leads to war-torn countries, such as Sudan, or countries like Russia and Venezuela where nationalism is capable of overturning oil deals at will. The adventures don’t end there.
Last week, India enhanced its ties with Vietnam for, among other activities, exploring oil and gas in the South China Sea. It is a part of the world over which China claims “indisputable sovereignty”. This balloons the political risk in doing business in the high seas. It will rise exponentially if ONGC Videsh Ltd were to strike hydrocarbon reserves. A discovery would possibly provoke China to use its naval might to take over the find.
File photo of a drilling rig at a field in Sudan in which ONGC has a stake (Bloomberg)
India would have little or no ability to retrieve this situation after having spent millions of dollars in scouring the seas. In the oil business, it is not uncommon to witness the burden of political risk overtake commercial success. And India is familiar with this lesson, having been the beneficiary of this imbalance. It is, however, a risk well worth taking.
In 2003, India bought into its most profitable oil deal when Talisman Energy, a Canadian firm, exited its 25% stake in Greater Nile Petroleum Operating Co. in Sudan. The Canadian firm sold out merely because of the heightened political risk generated by civil society groups in Sudan that accused Talisman of human rights violation. This despite the fact that “on ground” the project did very well—production exceeded estimates and revenues vaulted on the back of rising global crude prices. As Talisman CEO Jim Buckee put it shortly after selling out to India’s OVL, “Talisman’s shares continue to be discounted based on perceived political risk in-country and in North America...” For sure, India beat China to this investment opportunity—China already had a 40% stake in the project when OVL entered.
No two situations are identical and India may or may not “win” in the South China Sea, as the risks involved there are much more acute. But given the geopolitical stakes involved—an aggressive “look east” policy—the “sunk” investment and costs are well worth it.
Should India explore the South China Sea for oil? Tell us at views@livemint.com
Comment E-mail Print Share
First Published: Mon, Oct 17 2011. 10 25 PM IST
More Topics: Ourviews | India | Vietnam | Sudan | China |