BackOVL buy of Imperial’s Siberia deposits under audit scanner
OVL's acquisition has failed to meet projections because of falling oil output, prompting CAG to fault the purchase
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New Delhi: ONGC Videsh Ltd’s (OVL) $2.1 billion (around ₹ 13,170 crore today) acquisition of Imperial Energy Corp. Plc’s Siberian deposits is under the scanner, with an audit committee examining the process involved in one of the most expensive resource purchases made by India.
The committee, comprising independent directors on the board of state-owned Oil and Natural Gas Corp. Ltd (ONGC), took up the issue on a reference by the petroleum ministry, which has been battling concerns over the Imperial acquisition.
“The audit committee is examining the matter. There have been concerns," an ONGC executive said, requesting anonymity.
OVL’s acquisition of Imperial in 2009 to secure the Siberian deposits and reduce India’s dependence on energy imports has failed to meet projections because of falling oil production and prompted the Comptroller and Auditor General of India (CAG) to fault the purchase.
“The issue has been referred to the audit committee around six months back," said another ONGC executive, who also didn’t want to be identified. “The committee is headed by an independent director."
A spokesperson for OVL confirmed the development. “The issue has been referred to the audit committee of ONGC. The audit committee of ONGC has referred the issue to OVL. We have replied to the queries. Now the audit committee of ONGC has to take a view and send a reply to the ministry," the spokesperson said.
While peak oil output from the Siberian fields was estimated at 80,000 barrels per day (bpd) by 2011 at the time of the purchase, it was lowered to 45,000 bpd, Mint reported on 17 June 2010.
According to ONGC’s Perspective Plan 2030, the company is targeting production of more than 130 million tonnes of oil equivalent (mtoe) in 2030, of which half will come from assets owned by OVL.
“The growth has to come from overseas and hence the concern," said the first ONGC executive quoted above.
Most of the company’s domestic fields are more than 30 years old. ONGC has been battling concerns over its production capabilities and diminishing yields at its ageing oilfields. While ONGC’s domestic reserves increased to 1,287 mtoe in 2011-12 from 1,243 mtoe in 2010-11, its production declined to 52.4 million tonnes (mt) from 52.6 mt. ONGC produced 26.12 mt of crude
in 2012-13, against 26.92 mt in the previous fiscal year. Gas production fell to 25.33 billion cu. m (bcm) from 25.51 bcm earlier.
Imperial’s main asset is its Siberian fields, with acreage of around 16,800 sq. km. Apart from the acquisition cost, OVL has invested around $500 million.
The CAG, finding fault with the acquisition of Imperial Energy, had earlier said OVL’s “prediction for production levels was highly optimistic rather than realistic".
Mint reported on 25 March 2011 that the government’s auditor said OVL incurred a loss of ₹ 1,182.14 crore between January 2009 and March 2010 due to its inability to achieve the estimated oil production of 35,000 bpd.
According to the CAG report, production was 9,067 bpd in 2009 and 14,724 bpd till August in 2010 “due to tight reserve position and delay in drilling the wells". OVL achieved a production of 15,803 bpd in the 15 months to March 2010.
OVL purchased Imperial Energy with approval from the cabinet committee on economic affairs (CCEA), “subject to stipulation that the IRR (internal rate of return) should be more than 10% and an option to farm out a part of its stake to a Russian firm". This IRR could not be achieved because of low production.
A former top petroleum ministry official, requesting anonymity due to the sensitive nature of the issue, said: “While it is only appropriate to refer such an issue to the audit committee if it involves a financial hit to the company’s balance sheet, I don’t know what will come out of this audit even if it is headed by an independent director".
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