Oil India appoints McKinsey to draw up corporate strategy plan3 min read . Updated: 03 Apr 2015, 03:52 PM IST
The process may involve recommendations to restructure the state-owned firm
New Delhi: Oil India Ltd has asked consultancy firm McKinsey and Co. to suggest ways to shore up its faltering production as the country struggles to meet its ambitious targets for energy security. This might involve recommendations to restructure the firm.
“Oil India has appointed McKinsey to help work out its corporate strategy. Its challenge is to get more acreage and increase reserve accretion," a person aware of the development said, requesting anonymity. “Also, given its presence overseas, a robust risk analysis is required."
Improved production and buying of overseas assets by state-owned firms such as Oil India and Oil and Natural Gas Corp. Ltd (ONGC) are important for energy security because local resources are scarce, with the country having to import as much as 77% of its energy needs. Prime Minister Narendra Modi wants imports to be cut by half by 2030.
An Oil India executive confirmed the latest development. “McKinsey has been appointed to work out a strategic plan," he said, also declining to be named. “This is an exhaustive exercise to help us with our future plans for the firm."
Indian firms have been facing difficulties in Venezuela. In South Sudan, Syria, Libya and Yemen, production has been hit by civil strife. And escalating tension in West Asia has pushed up the price of crude oil with Saudi Arabia and its allies intervening in the conflict in Yemen. The action has stoked concerns about the security of oil shipments from West Asia.
“Proxy war between Saudi Arabia and Iran in Yemen may further destabilize the situation," said Daniel Yergin, founder of IHS Cambridge Energy Research Associates.
Oil India has a presence in 27 blocks in India. Its overseas portfolio comprises of 16 fields in 10 countries—Libya, Gabon, Nigeria, Yemen, Venezuela, the US, Mozambique, Myanmar, Bangladesh and Russia.
The development comes in the backdrop of concerns being expressed about the production capabilities of India’s state-owned firms and their ability to find new energy reserves. India’s energy import bill of around $150 billion is expected to double to $300 billion by 2030.
McKinsey declined to comment. Oil India didn’t respond to emailed queries.
Protests by local political groups have frequently disrupted production at Oil India’s fields in Assam. The energy explorer, almost all of whose domestic production comes from the state, has admitted that it is “difficult to revive the wells at a normal level of production after the wells are shut down due to bandhs", or strikes. The frequent protests have led to it missing production targets, imperilling India’s energy security plans.
Oil India has been unable to meet its targets due to several strikes and blockades in Assam. The explorer produced 2.567 million tonnes (mt) of crude oil for the first nine months of the last fiscal year, compared with 2.68 mt in the corresponding period of the previous fiscal. However, natural gas production increased to 1.65 billion cubic metres (bcm) during April-December, compared with 1.59 bcm in the corresponding period of the previous fiscal year.
India’s attempts to achieve energy security through overseas investments have frequently run into trouble. ONGC Videsh Ltd’s $2.1 billion acquisition of Imperial Energy Corp. Plc’s Siberian deposits is an example. The Comptroller and Auditor General of India had raised questions over the 2009 deal, which was one of the most expensive resource purchases by a state-owned firm.
Things remain bleak on the domestic energy front as well. Interest in finding hydrocarbons has waned, with around 70% of Indian basins still largely under-explored. India’s energy demand is expected to more than double from less than 700 million tonnes of oil equivalent (mtoe) today to around 1,500 mtoe by 2035, according to estimates made by the oil ministry.
According to the Energy Statistics report prepared by the ministry of statistics and programme implementation, estimated domestic reserves of crude oil and gas are at 762.74 mt and 1427.15 bcm, respectively. India follows the US, China and Russia in energy use, accounting for 4.4% of global energy consumption.