OVL rejigs its strategy; opts for acquiring producing assets in near term

Our primary business is Exploration & Production (E&P). But, with changing geo-political dynamics and like most others, we too had to re-look at our business strategy, especially from the standpoint of anticipated change in the global energy mix, rapid growth in renewables, ESG goals, besides intrinsic challenges in the E&P space.

In the exploration business and for an onshore acreage, the gestation period from initial exploration, including seismic data acquisition, processing, interpretation, drilling, facilities, and development, till the production and sales stage, is anywhere between 6-8 years and for offshore it is 9-12 years. During this time frame and in executing the various processes, if the geo-political environment of the investment changes, there could be a significant risk. Additionally, there are risks of fiscal instability, price volatility, and demand uncertainty, besides other execution risks.

Agreed, that exploration is a risk-taking business, but a lot of issues have to be kept in mind before committing funds toward large and long-term investments. Even today, OVL has 8-9 active exploration blocks. But, in near term it would look at acquiring stakes in producing or near-term producing fields.

 A decision on whether to go ahead with exploration acreage would principally depend on the subsurface materiality, fiscal conditions, geopolitical stability, and strategic fit which are being offered, besides the geo-political situation in the larger region. 

Currently, OVL owns participating interests in 32 oil and gas assets in 15 countries. Till now OVL has maintained a balanced portfolio approach and maintains a combination of producing, discovering, exploring, and pipeline assets. OVL, at present, produces from 14 Assets, 4 Assets where hydrocarbons have been discovered and are at various stages of development, 11 Assets are under various stages of Exploration and 3 are pipeline projects.

 In FY 2021-22 the production of oil and oil equivalent of gas (O+OEG) was 12.33 MMtoe, which declined to 10.171 MMtoe in 2022-23. This decrease has mainly been due to force majeure conditions in Russia, extensive floods in South Sudan, licence expiry in a producing asset in Colombia as well as outages in a few other producing assets.

At present trade between India and Russia has increased and the quantum of proceeds from the trade has also commensurately increased. By comparison, our dividend amount is modest. OVL gets dividends on profits made by the operating consortium from selling oil and gas produced from the fields. Though there do exist some restrictions on repatriation of funds, we remain invested and are optimistic of an early and satisfactory resolution.

The dividend amount is parked in our accounts in Russia and there is no challenge there. Besides, we do have major investments in Russia and need funds to run our setups there. Therefore, there is no urgency to move it. However, in the eventuality that we do need to move the funds, then we would need to look at suitable banking channels. We are in close collaboration with our partners and operator in Russia, and we remain invested in the country for synergistic growth in our quest for energy security.

We are producing from Imperial. At present, it is business as usual for us there, but yes, we were looking at partners with expertise. In fact, we progressed on that front in 2021 and in early 2022 had reached a fairly decisive level, but then in between things came to a standstill due to a changed geo-political scenario. We are relooking at this endeavour of bringing in a suitable strategic partner but this would take about 12-18 months for fruition. We seek local partners who have the technical, operational, and domain expertise. As regards how will the partnership work out, it is still early days, we can consider from a basket of options.  

OVL has faced significant business challenges in the past year affecting its portfolio right from geo-political events, increased regulatory oversight, tightening fiscal regime, unprecedented floods (once-in-a-century, two years in a row) affecting operations, and ageing fields which has reflected in its declining production.

We are currently in a consolidation phase but expect to organically grow over the next 4-5 years by about 4.5 MMtoe once our offshore assets in Mozambique and Brazil commence production. We are also very optimistic about block CPO-5, our operated project in Colombia where we believe significant upsides exist. We have also obtained extensions in exploration licence periods in South Sudan, Colombia, Bangladesh, Myanmar; in Vietnam, we have had licence validity of a producing field extended. With all these steps we expect to organically grow our production number by almost 60 per cent from the present level in the next 6 years.         

The international oil and gas M&A space has evolved in the past few years, with diminished appetite for risk, hence more competition for clean-flowing barrels. This, coupled with energy transition, ESG, green financing, has actually increased competitive pressures for quality barrels.

OVL continually scouts for quality investment opportunities. It appears that in the O&G space, there is high competition for barrels which can be sighted over say the next decade and a half, beyond which appetite and interest diminishes.