At a time when most oil and gas companies are entering into expensive alliances to pursue hydrocarbon exploration and production (E&P), Oil India Ltd (OIL) has decided to seek out partnerships with small companies for their existing contracts in Africa.
OIL is India’s first oil and gas exploration company, but has remained in the shadow of the Oil and Natural Gas Corp. It has been cramped by its relatively smaller size, while pitching for big oil E&P contracts. Large overseas deals require bigger balance sheets, which OIL does not have.
“We have decided to adopt this approach as the big companies are capable of exploring opportunities on their own and do not wish to partner with companies like us on equal terms and conditions,” an OIL executive, who did not wish to be quoted, told Mint.
To start with, OIL is looking at partnerships with small companies in Libya and Nigeria, which have small acreages. “We are currently looking at a few blocks and will take a participatory interest where we will be equal partners,” the executive added. These are the blocks which are already with the African companies, but have not been explored on account of limited availability of finances and expertise.
At the same time, OIL has kept its options open for large projects, and will keep its alliance with its overseas acquisition partner, Indian Oil Corp. (IOC), alive. OIL earlier had plans to partner with ONGC Videsh Ltd (OVL) in Sudan, but it did not work out, and later, it joined hands with IOC. OIL had a net worth of Rs5,848.3 crore in 2005-06, with a debt to equity ratio of 0.06:1, and it made a profit of Rs1,689.90 crore.
“I find the strategy to be quite interesting. In large deals, they will always have OVL for competition. The first driver behind this strategy is to avoid direct competition with OVL, and find a niche in the global E&P space,” Ajay Arora, partner, Ernst & Young, said.
A number of larger deals like Sakhalin in Russia are being pursued by big companies such as Shell and Exxon Mobil. “As these are big-sized companies, it is a challenge for OIL to qualify with them. While most of these deals are in the offshore space, OIL has been historically present in the onshore space,” Arora added.
OIL has overseas interests in Libya, Gabon, Nigeria, Yemen and Iran, and is actively pursuing opportunities for acquiring hydrocarbon assets, exploration in Africa, West Asia, Southeast Asia, South America, Russia and other countries under the Commonwealth of Independent States.
There are a number of small companies in the exploration space in Africa, all sitting on huge E&P acreages. “As some of these assets will not be attractive to the big companies, OIL’s size and its ability to crack a fast deal will work for the company,” Arora added.