Call it an imperial dud. When ONGC Videsh Ltd (OVL) acquired the British energy firm Imperial Energy Corp. Plc in January 2009, it was hailed as an important acquisition. It was, so to speak, the Indian answer to the aggressive Chinese purchases of hydrocarbon assets across the globe.
Today, the deal has all the makings of a bungled buyout. As reported in Mint on Thursday, the output of oil from Imperial’s Russian oilfields is expected to peak at 45,000 barrels per day (bpd) against the claim of an estimated 80,000 bpd. The latter figure was used to settle the price of the deal, an expensive $2.1 billion.
Oil prospecting and reserves estimation are an old and imperfect game. Even state-of-the-art geophysical evaluation techniques do not permit exactitude that companies and governments would like as they value assets and companies. An estimate falling by almost half, however, spells something else. It is either a case of weak or non-existent due diligence or fraud of some kind. This is not a new phenomenon; oil companies are known to fudge figures while making statements to regulators and shareholders alike. For India, it represents a loss, not only of money but badly needed energy resources as well. The situation demands that the officials and politicians concerned should face the law. In the conditions that prevail in India, however, expecting this to happen is as good as looking for a snowball in hell.
At the moment, Imperial’s oilfields in the Tomsk region of western Siberia have an output of 16,000-16,500 bpd. India’s annual consumption is estimated at 3.2 million bpd. An asset supplying 80,000 bpd could have made a significant contribution to this big demand. The clamour for oil will only grow in the years to come as India’s growth rates rise and industrial expansion speeds up. Now this hope has been belied.
The question is: What next? In the case of Imperial, there’s not much that can be done to ameliorate matters. One can, of course, take up the matter with the former owners of Imperial, but this will only bring back the main question: Why were the oil reserve figures not evaluated properly? Within the government, a serious lapse of this kind is unlikely to be punished. A better way would be to get independent, external evaluators to do the job. That way ignorance will not be used as an alibi to make bad investment decisions.
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