No cash? No problem. OVL eyes oil from Venezuela instead

Summary

  • The state-run firm is in talks with its Venezuelan partner PdVSA to secure oil cargoes in lieu of unpaid dividends totalling $600 million

ONGC Videsh Ltd (OVL) is in talks with its Venezuelan partner to secure oil cargoes in lieu of unpaid dividends totalling $600 million, two people aware of the development said. This follows the US easing sanctions on Venezuela, where India’s overseas explorer has partnered state-owned Petróleos de Venezuela SA (PdVSA) for the San Cristobal project.

Any oil flowing in from Venezuela holds significance for India, the world’s third largest oil buyer that once counted the Latin American country among its largest oil suppliers.

A spokesperson for OVL confirmed in response to a query that the San Cristobal project owes dividends of around $600 million to the company. “Post easing of US sanctions, OVL is in continuous dialogue with PdVSA for recovery of accrued dividend by various mechanisms including allocation of crude cargoes in lieu of accrued dividend," the spokesperson said.

OVL, the overseas arm of Oil and Natural Gas Corp. Ltd (ONGC) , acquired 40% in San Cristobal in 2008, with PdVSA owning the balance. OVL holds 40% through ONGC Nile Ganga (San Cristobal) BV, a wholly owned subsidiary of ONGC Nile Ganga BV

While declared dividends add up to $400 million, undeclared dividends account for another $200 million. The dividends have remained unpaid since Venezuela’s late president Hugo Chávez appropriated PdVSA’s earnings for populist spending.

In October 2022, the US announced a political agreement with Venezuela, now led by Nicolás Maduro. Following this, the US treasury department temporarily authorized “all transactions prohibited by the Venezuela Sanctions Regulations, 31 CFR part 591 (the VSR), related to oil and gas sector operations in Venezuela, including transactions with PdVSA, subject to certain conditions."

The authorization suspended sanctions covering most oil and gas sector operations in Venezuela, including energy sales to the US and others, as well as the payment of taxes, royalties, costs, fees, dividends and profits related to oil and gas sector operations or transactions involving PdVSA.

Queries emailed to the spokespersons of India’s ministries of petroleum & natural gas and external affairs on Thursday remained unanswered. While a PdVSA spokesperson couldn’t be contacted, queries emailed to the Venezuelan embassy in New Delhi on Tuesday were unanswered till press time.

“We are trying to secure oil cargoes in lieu of these stuck dividends. Venezuelan oil is back only for six months with a lot of caveats. Also, they don’t have the capacity to rapidly ramp up production," one of the two people cited above said on condition of anonymity.

Analysts concur with this assessment. S&P Global Commodity Insights in a note post the easing of US sanctions said “it expects little change in Venezuelan oil production capacity in the next six months, as PdVSA has little to no investment capital and much of the oil-related infrastructure is in a poor state of repair."

“Venezuela’s current capacity lies between 800,000-850,000 b/d (barrels per day), with current production sitting around 750,000 b/d," the S&P report said and added, “India used to be a regular buyer of Venezuelan crude oil grades prior to the imposition of US sanctions. During the pre-sanctions period from 2017 to 2019, India imported approximately 300,000 b/d of Venezuelan crude grades, with private refiners like Reliance Industries being the key buyers."

OVL also owns 11% in Venezuela’s Carabobo Project 1, where Indian Oil Corp. Ltd and Oil India Ltd own 3.5% each, with PdVSA and Spanish energy major Repsol holding 71% and 11%, respectively.

OVL has been investing in overseas oil and gas assets as part of India’s energy security strategy. The overall investment by state-owned companies in oil and gas assets abroad stands at $36.555 billion across 55 assets in 25 countries.

India has been facing the issue of stuck dividends in sanctions-hit Russia as well. Mint earlier reported about Indian state-run energy firms including OVL, Bharat PetroResources Ltd, Indian Oil and Oil India facing around $400 million in stuck dividend payments from CSJC Vankorneft and LLC Taas-Yuryakh in Russia given the difficulty in transferring dividend payments due to sanctions on Moscow. This has gone up to around $600 million.

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