Oil India plans new overseas subsidiary after Libya lessons

Oil India plans new overseas subsidiary after Libya lessons

New Delhi: In an attempt to limit foreign liabilities following its experience in Libya, state-owned Oil India Ltd (OIL) plans to set up a subsidiary to invest in overseas assets.

The decision to derisk the parent company through a subsidiary may be taken at OIL’s next board meeting, said chairman and managing director N.M. Borah.

“This idea came post Libya," he said. “We haven’t taken the final decision but are considering it."

OIL is present in Libya in five blocks. It is the operator in two blocks, Area 86 and Area 102/4, which it acquired through competitive bidding. The explorer is in the process of relinquishing these blocks in which it holds 50% stake each, as it could not find significant hydrocarbon reserves.

OIL is also present in three blocks in Area 95/96 in a consortium in which Sonatrach, the national oil company of Algeria, is the operator. OIL holds 25% participating interest in these blocks on which work is in progress. The company has made an overall investment of $45.05 million in all five blocks.

Libya is estimated to have around 100 billion barrels of oil reserves, accounting for 40% of Africa’s reserves.

West Asia and Africa meet nearly 75% of India’s oil requirements. Pro-democracy and civil rights protests have swept across the region since December, spreading to Libya, Algeria, Syria, Jordan, Yemen, Oman and Bahrain, among other nations. Limited protests have also taken place in Saudi Arabia.

Oil prices have risen because of the ongoing turmoil, with supplies from Libya being particularly hit amid fighting between supporters of Moammar Gadhafi and armed rebels who want to overthrow his 41-year-old rule.

“This is a structuring issue. When a company invests abroad, several issues gets factored into investment-structuring decisions and forming a separate investment entity is a good way to keeping the parent’s balance sheet insulated from investment-related risks," said Shubhranshu Patnaik, senior director, energy and resources, Deloitte India.

OIL’s subsidiary plan assumes significance given its intent to acquire stakes in overseas hydrocarbon assets. It has set aside up to 4,500 crore for overseas acquisitions. OIL, which has a cash balance of 12,700 crore, is looking for assets in South-East Asia, Australia, Latin America, Canada, Russia and Africa. The explorer is also part of an Indian consortium that plans to bid for a less than 20% stake in a natural gas liquefaction project and liquefied natural gas marketing opportunity offered by Russian firm Novatek OAO in the Yamal peninsula. OIL is also part of another consortium that has submitted a reworked master development plan for Iran’s Farsi natural gas block.

OIL’s net profit in fiscal 2011 increased 10.62% to 2,887.73 crore. Annual revenue from operations rose 5.03% to 8,303.38 crore.