Imperial Energy experience a lesson, say officials

ONGC Videsh Ltd (OVL) needs more developed oil and gas-producing assets rather than exploratory acreages to achieve its 20 million tonnes oil equivalent by fiscal 2018.

Industry observers say though the company may continue to acquire exploratory acreages, these will not help it in meeting the immediate production target. An exploratory block will require at least five-seven years to start yielding benefits. OVL’s output in FY12 was 8.75 million tonnes.

The two recent deals of OVL have been acquisition of equity stakes in already developed assets. Today, while going for purchases, OVL’s Imperial Energy experience — an acquisition of 2009 which has not performed as expected — is helping.

‘Tough reservoir’

“While carrying out due diligence of an asset/acreage the company keeps certain factors in mind,” an industry official said. Earlier estimates of Imperial Energy had envisaged an output of 80,000 barrels of oil a day by 2012-13, which OVL lowered to 45,000 barrels last year.

The current output is 10,000-15,000 barrels of oil a day. There are a total 17 fields, of this, only five are main producing ones.

Imperial Energy Corporation Plc, was an independent upstream oil exploration and production company acquired by OVL in January 2009 having its main activities in the Tomsk region of Western Siberia, Russia.

Sources said, it was only when the OVL projects team started work on the field that the ‘tough reservoir’ conditions become obvious. It encountered reservoir rock, which is tight. At present, OVL is trying to get the best technology to explore tight rocks, as the best areas of the blocks have tight reservoir.

Logistics is also an issue with Imperial. Learning from the Imperial deal, the factors that now determine OVL’s acquisitions include surface conditions, sub-surface conditions, logistics, evacuation, fiscal regime, as well as geo-political risks, say industry observers.

Impairment provision

In fact, the company in the last fiscal made a Rs 1,953-crore provision for impairment for this project, as the asset was performing lower than estimated and the ‘value in use’ computed for the asset as on March 31, 2012, was lower than its carrying value.

In 2011-12, Imperial Energy produced 0.771 million tonne of oil against 0.770 million tonne in 2010-11

Currently, OVL is participating in 31 projects in 15 countries, of which, 10 are producing projects.

Recently, the ONGC Group finalised its long-term plan, Perspective Plan 2030, setting a production target of 20 million tonne of oil equivalent (mmtoe) by fiscal 2018 and 60 mmtoe by fiscal 2030 for OVL.

(This article was published on December 2, 2012)
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