OVL plans $1 bn investment in offshore Petrobras block

State-run ONGC Videsh Ltd (OVL) is looking to invest around $1 billion in a Brazilian offshore hydrocarbon block and also raise its stake, a person aware of the development said, in the latest Indian effort to strengthen energy security.

Brazil’s state-run Petroleo Brasileiro SA (Petrobras) operates the BM Seal-4 block with a 75% participating interest, while OVL holds the rest. It saw a major gas discovery in 2019 and is expected to start production after 2026. OVL’s stake in the block is expected to go up after the investment.

OVL’s decision to invest follows the declaration of commerciality (DoC) for the BM Seal-4 block, with the final investment decision (FID) to be taken shortly. The block lies in the Sergipe Alagoas Offshore Basin in a 320 sq. km area.

“Energy diversification is an important agenda before the Indian government with investments planned in Brazil,” the person cited above said on the condition of anonymity.

The investment plan comes against the backdrop of a growing energy partnership between India and Brazil. India has been trying to diversify its energy supplies and access equity oil and gas from Brazil, which is currently the seventh largest global crude oil producer and exporter. India’s playbook also involves using Brazil as a beachhead to firm up partnerships with other Latin American countries. The efforts have gained traction, with Indian Oil Corp. recently signing a long-term contract to procure crude oil from Colombia’s state-run Ecopetrol SA.

With India dependent on imports for as much as 85% of its oil needs and 55% of its natural gas demand, the country’s policy planners have been trying to acquire equity energy at a time energy prices have become very unpredictable in the wake of the Ukraine war. A consortium of OVL, Indian Oil Corp. (IOC) and Oil India Ltd is also looking to invest jointly in the massive Vostok project of Russia’s Rosneft. India has also been looking to invest in Novatek’s Arctic LNG-2 project as part of its energy security efforts.

Queries emailed to the spokespeople for OVL, ONGC, and India’s ministry of petroleum and natural gas on 30 September remained unanswered till press time.

A Petrobras spokesperson, in an emailed response, said, “Petrobras informs that there is no transaction concerning BM Seal-4.”

The proposed investment in Brazil comes against the backdrop of IOC inking a long-term supply contract with Petrobras. Also, state-run BPCL’s subsidiary Bharat PetroResources Ltd (BPRL) will invest $1.6 billion to develop the BM-Seal-11 project in Brazil. India’s cabinet committee on economic affairs (CCEA) in July approved this additional investment in the project, which is expected to see production from 2026-27, wherein BPRL has 40% PI, and Petrobras, with 60% participating interest, is the operator.

“Most people and even experts have not registered that Brazil is an important player in oil. Today, we are the seventh largest producer and seventh largest exporter of oil, and we will be the fifth largest producer and exporter soon. However, India is one of the first countries to accept the idea that Brazil is a major player in oil. Since Brazil is a new player in this industry, it is important that we have as close a relationship as possible with India, which is a major consumer nation,” Brazil’s ambassador to India, Andre Aranha de Lago, said in a recent interview.

The proposed investment in the Petrobras block by OVL also comes at a time India has been trying to secure LNG globally after a contract with GAIL (India) Ltd was reneged on by Gazprom’s former subsidiary, Gazprom Marketing and Trading Singapore. India has reached out to the US, UAE, Saudi Arabia, and Iraq at a government-to-government level to secure additional LNG cargoes at affordable prices, as reported by Mint earlier.

India’s natural gas consumption has been on an upswing with a focus on developing a gas-based economy, with the country consuming 163.06 million standard cu. m per day (mscmd) in FY22. Gas comprises 6.2% of India’s primary energy mix, far behind the global average of 24%. The government plans to increase this share to 15% by 2030. With India being the world’s fourth-largest LNG importer, Indian firms have inked long-term LNG contracts totalling 22 million tonnes per annum (mtpa). India’s gas demand is expected to be driven by the fertilizer, power, city gas distribution, and steel sectors. India’s import and production of natural gas in 2021-22 resulted in supplies of 64.8 billion cu m in the country. India produced 34,024 mscm of gas in 2021-22.

“ONGC is one of the largest global oil exploration and production companies. It produced 1.12 million barrels of oil equivalent per day in FY22, had proven reserves of around 6.2 billion barrels of oil equivalent (boe; 4.2 billion boe in India) and a reserve life of around 15 years at FYE22,” Fitch Ratings in a 7 September report.