ONGC Videsh Ltd’s most expensive buy, Imperial Energy Corp, is producing less than half of the projected crude oil production even after two-and-half years of its takeover by the Indian giant.

Imperial, whose main assets are in Tomskh region of east Russia, is producing between 17,000 and 18,000 barrels of oil per day, lower than the projected output of 40,000 bpd, OVL Managing Director, Mr Joeman Thomas, told reporters here.

“It (output) is not up to our expectation. It should have been more,” he told reporters here. “We are not able to produce at the rates envisaged due to various reasons.’’

OVL, the overseas arm of Oil and Natural Gas Corp (ONGC), had in January 2009 acquired the Russia-focused Imperial Energy for $2.12 billion (Rs 10,320 crore).

Mr Thomas said the reasons for lower than projected output were “frequent changes in tax rates by Russia’’.

Tax paid by oil explorers to Moscow vary from month to month and Imperial’s current net realisation after paying all taxes and duties is just $15-16 per barrel.

The company does not want to invest more in drilling new wells and tapping the so far untapped reserves, which will raise output, unless there is a resolution to the tax problem, he said.

Also, some of the oil reserves are in tight formations, which are difficult to exploit using conventional technology.

The Comptroller and Auditor General (CAG) had in March this year rapped OVL for its buyout of Imperial saying reserves were inflated and unrealistic projections of output were made to justify the most expensive acquisition ever.

The Cabinet Committee on Economic Affairs (CCEA) had in August 2008 allowed OVL to acquire Imperial subject to stipulation that the rate of return on investment is more than 10 per cent. Also, OVL was to farm out a part of its stake to a Russian firm.

Before the acquisition, the technical consultant and OVL had estimated the 2P reserves (that have 50 per cent chance of being produced) of Imperial Energy at 790 million barrels of oil equivalent and 825 million barrels of oil equivalent, respectively.

“With these estimates of reserves and long-term crude price at $85 per barrel, the company (OVL) assessed the project as viable with the average daily rate of production at 35,000 bpd for 2009 and thereafter, being enhanced up to 80,000 bpd by 2011,” CAG had said in its report.

Against this, the actual rate of production on October 20, 2008 was only about 5,634 bpd against the projected output of 11,000 bpd. Average output in 2009 was 9067 bpd and for January-August 2010 14,724 bpd, much lower than what was projected at the time of acquisition.

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