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OVL’s missed targets abroad

OVL’s missed targets abroad
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First Published: Sun, Mar 27 2011. 09 03 PM IST
Updated: Sun, Mar 27 2011. 09 03 PM IST
Oil and gas exploration and production (E&P) is an expensive and risky business at the best of times. Very often, hydrocarbon assets are either located in remote and geographically difficult terrain (Siberia is one good example) or in politically volatile regions (sub-Saharan Africa comes to one’s mind). In such circumstances, careful evaluation of prospective assets can hardly be understressed.
In a recent report on the functioning of the joint venture (JV) operations of the Oil and Natural Gas Corp. Ltd’s (ONGC) overseas arm, ONGC Videsh Ltd (OVL), the comptroller and auditor (CAG) has criticized various aspects of OVL’s functioning in this respect. As reported in Mint on Friday, OVL’s acquisition of Imperial Energy Corp Ltd—that has assets in Siberia in Russia—has been criticized for underperformance in terms of the gap between expected and realized output. This is an old controversy but one that has continued salience.
At a broader level, beyond controversies involving individual cases, the CAG has some truth in its assertions about OVL. In its words, “It is desirable to have a documented and structured policy for evaluation as also for formation of JVs detailing the extent of acquisition of participation interest in offered E&P assets and farming-in and farming-out of participation interest. The Company, however, did not have such a policy which would have provided a framework for decision making and brought about greater consistency, assurance and transparency in the system.”
One conceivable criticism of this approach could be that it reflects an accountant’s mindset and given the large diversity of cases that are evaluated, it is not possible to frame such a policy. This may be true in some cases where paucity of data and other complexities may prevent a rule-based/structured approach from delivering desired results. It, however, cannot be true in every case. There are firms in the oil and gas E&P business that shrewdly avoid duds and finds of doubtful value. Surely not all of them operate on the basis of discretionary evaluation of projects and prospective finds?
What cannot be denied is that OVL has a steep learning curve ahead. One the one hand, with every passing day, India’s energy security requirements continue to rise. On the other hand, globally good hydrocarbon finds are dwindling in easy areas.
What can OVL do to improve its performance? Tell us at views@livemint.com
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First Published: Sun, Mar 27 2011. 09 03 PM IST
More Topics: Ourviews | ONGC | OVL | Energy | Oil |