A Parliamentary panel has slammed ONGC Videsh’s (OVL) acquisition of Imperial Energy Corporation, as well as the Centre’s and the company’s subsequent replies to the panel’s recommendations.
“The Committee is irked at the intransigent stand taken by OVL justifying the acquisition of Imperial Energy Corporation asset. Except reiterating its earlier reply, OVL has not offered any justification for its ill-conceived decision not to farm-out part of its stake in IEC to local Russian firms/entities and its unrealistic estimation of oil reserves and production targets,” a report on Joint Venture Operations of ONGC Videsh by the Standing Committee on Public Undertakings has said.
Panel’s criticismThe panel’s report added that Ministry of Petroleum and Natural Gas’ claim that post-acquisition IEC was successful in ramping up production to 19,200 barrels of oil per day (bopd), is “woefully short” of the estimated production target of between 35,000 to 80,000 bopd.
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. The acquisition was made at an investment of about $2.9 billion. On the issue of criticism of unrealistic estimation of reserves/production, the Centre informed the Committee that reserves of IEC were certified by DeGolyer & MacNaughton (D&M), an internationally reputed US-based reserves audit firm.
On the decision of OVL choosing not to sell a stake to a local partner, the Centre said that stake sale also depends on risk reward perception and prevailing market conditions.
“In August 2008, OVL had no plan to farm out any stake of the target asset and hence no participating interest was farmed out,” the Centre’s reply stated.
The panel also said that its “growing apprehension” that all is not well with the IEC acquisition, has been confirmed with the company’s assertion that such reservoirs elsewhere in the world have been successfully exploited with appropriate technology and a favourable tax regime.
To this, the Centre said that OVL is engaged in partnership of a US-based independent exploration and production company for a pilot scale application of horizontal drilling and fracking to exploit these reservoirs.
“The full-fledged application of the new technology to enhance production from the asset shall follow the ongoing pilot program based on its results,” the Centre stated in its reply.
The panel concluded stating that it would like to be apprised of the progress made in OVL’s attempt to turnaround the performance of the IEC asset.