WSJ:ONGC Videsh Expects Oil, Gas Output To Fall This Year
By RAKESH SHARMA
NEW DELHI -- ONGC Videsh Ltd., the overseas exploration unit of Oil & Natural Gas Corp., expects its oil and gas production to decline this financial year because of lower output at its assets in Russia, Sudan and Syria.
The expected drop from a record output in the year ended March 31, 2011, may further weaken investor sentiment at state-run ONGC, which is already battling declining production at its Indian assets for the last four years. Investors view OVL as a hedge against ONGC's exposure to local pricing risks.
ONGC shares revenue losses of India's state-run refiners, which sell diesel and cooking fuels at government-mandated discounted prices. Since there is no fixed formula on subsidizing retailers, investors are always unsure of ONGC's earnings.
"It is true that our production will decline this year," OVL Managing Director Dinesh Sarraf said in an interview Wednesday. "Some of our producing assets like Russia, Sudan are quite old. And Syria production will also have an impact."
OVL, which also has producing assets in Vietnam and Columbia, contributed about 12% of ONGC's consolidated net profit of 228.25 billion rupees ($4.33 billion) last fiscal year. OVL produced 9.43 million tons oil and oil-equivalent gas last year, its highest-ever since inception and up 6.5% on year, its website showed.
Mr. Sarraf didn't say how much the production would decline this year.
New Delhi-based OVL has a 20% stake in Russia's east offshore Sakhalin-1 field, which is operated by ExxonMobil Corp., and is facing a natural decline in output.
OVL also owns Russia-focussed Imperial Energy, which it acquired in 2009 for $2.12 billion. Imperial's western Siberia fields are producing about 15,500 barrels a day of crude, Samarendra Roychaudhury, OVL's director of operations, said Wednesday. Daily production was 18,500 barrels in June, according to OVL's website.
OVL is holding back investment needed to raise output at Imperial's fields, as it is talks with Russia for tax concessions, Mr. Roychaudhury said.
OVL's Greater Nile Project in Sudan, where it holds a 25% stake, and Block 5A, where it holds 24%, are also seeing a decline in output. Analysts fear Sudan output may fall further following the creation of South Sudan on issues related with profit sharing.
Output at OVL's Syrian assets has fallen due to European Union sanctions on the country's oil exports. An OVL unit holds 16.66% to 18.75% participating interest in four production sharing contracts operated by Syria's Al Furat Petroleum Co., where production has been cut 17% to 70,500 barrels a day from mid-September, India's junior oil minister, R.P.N. Singh, said Dec 8.
