Mumbai: Oil and Natural Gas Corp. Ltd (ONGC) and Colombia’s national oil company Ecopetrol SA have agreed to share technical expertise related to oil exploration.

The Indian company may later buy stakes in some of Ecopetrol’s energy assets.

“Three days back, we signed an MoU (memorandum of understanding) with Ecopetrol, under which we will partner them in a pilot project to produce heavy oil using the in situ combustion technology, and they will help us in hydrocarbon exploration in Tripura and Kacchar (Assam)," chairman Sudhir Vasudeva told investors at a meeting in Mumbai on Wednesday.

Action plan: ONGC chairman Sudhir Vasudeva. ONGC will tie up with Ecopetrol in a pilot project to produce heavy oil. Photo by Graham Crouch/Bloomberg.

Ecopetrol, which specializes in seismic imaging techniques to identify hydrocarbon potential in the hilly terrains of South America, will share its expertise with India’s state-controlled oil explorer to discover oil in hilly areas in Tripura and Assam, according to S.V. Rao, ONGC’s director of exploration.

This is ONGC’s second major international partnership in two months, which will begin with technical collaboration and may culminate in ONGC expanding its global footprint through stakes in overseas assets.

On 30 March, the company signed a cooperation pact—including equity partnership—with US energy conglomerate ConocoPhillips in shale gas assets and deepwater oil and gas blocks.

Rao said at Wednesday’s investor meet that the first step towards the ONGC-ConocoPhillips collaboration will begin next month when the two companies will study the Cambay, Krishna-Godavari, Cauvery and Bengal basins (where ONGC is present) for shale gas potential.

The study is likely to be completed in six months, following which a pilot project to extract shale gas will be undertaken, Rao said. Simultaneously, ConocoPhillips will also evaluate its international oil and gas assets where ONGC can pick up a stake.

The strategy to foster partnerships with internationally reputed firms in the oil and gas space and scout for assets abroad is in line with ONGC’s action plan to double production and triple revenue and operating profit by 2030, which was unveiled to investors at Wednesday’s meeting. The plan, drawn up by ONGC with assistance from consulting firm McKinsey and Co., envisages an investment of 11 trillion by 2030.

ONGC, India’s third largest by market value, has earmarked 2.64 trillion for investments in the next five years.

“Getting into international tie-ups and looking for assets abroad is a logical way to grow, since the scope in India in terms of production growth is limited," said Alok Deshpande, oil and gas sector analyst with Elara Securities (India) Pvt. Ltd. “Also, since ONGC has the financial muscle to look at assets abroad, it is not a bad strategy."

“We have to strengthen OVL (ONGC Videsh Ltd, ONGC’s subsidiary that makes investments abroad), which depends on the financial and technical capability of the parent company at present," Vasudeva said. “Contribution from international assets to ONGC’s overall production has to grow six fold to 60 million tonnes of oil equivalent. We have to change our mindsets and secure new alliances."

However, one concern ONGC needs to mitigate while acquiring an asset abroad is the timing of such a purchase and the price it pays, according to Deshpande.

“For instance, ONGC finds itself in a spot of bother with respect to its acquisition of Imperial Energy," Deshpande said. “The deal was done when crude was trading at a high price of $125 per barrel and there could have been pressure from the government to buy the asset keeping India’s energy security in mind. It is beneficial if they are getting into long-term tie-ups with foreign companies, but if they are buying assets overseas, they need to be careful."

In December 2008, ONGC took control of the UK-based Imperial Energy Plc for $1.9 billion. However, in the March quarter, it had to provide $408 million, or around one-fifth of the acquisition value, on account of impairment of the asset because of lower-than-expected production at the firm’s primary assets in Russia.

OVL’s managing director Dinesh Sarraf said at the investor meet that it was in discussions with the Russian government to avail some fiscal incentives to try produce oil from a geologically complex region and the company was scouting for technical expertise in the US to improve production.