ONGC uses stuck Russian dividend dues for Sakhalin fund, seeks operatorship of Venezuela oilfields

New Delhi: State-run Oil and Natural Gas Corporation (ONGC) has used dividend proceeds held up in Russia to meet its financial obligations towards the abandonment fund of the Sakhalin-1 oil project, while in parallel is seeking operational control of oilfields in Venezuela in a bid to revive production and unlock hundreds of millions of dollars in unpaid earnings, senior company officials said Friday.

ONGC Videsh Ltd, the overseas investment arm of India's top explorer ONGC, and other state-run Indian companies had not been able to repatriate about $800 million in dividends from stakes in Russian energy assets due to Western sanctions imposed after Moscow's invasion of Ukraine in 2022.

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The firm used those dividends to make a contribution to the abandonment fund that allowed it to retain its 20 per cent stake in the Sakhalin-1 project. In October 2022, Russian President Vladimir Putin had ordered the seizure of the project and allowed the Russian government to decide foreign investors' ownership rights in the project.

OVL was allowed to retain its stake but had to make a contribution to the abandonment fund that is used for decommissioning activities to ensure that wells are properly shut in and that the process will not affect the environment.

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At an earnings call on Friday, ONGC officials, led by its Director (Finance) Anupam Agarwal, said dividend proceeds from its Russian investments that had been held up in the country have been utilised to meet abandonment-fund liabilities at the Sakhalin-1 project, enabling it to secure its 20 per cent interest in the asset.

They said there was currently no outstanding amount stuck in Russia, clarifying that dividend proceeds from the Vankor project in Russia had been deployed towards meeting the abandonment-fund obligations at Sakhalin.

ONGC is also negotiating new operating arrangements with Venezuela's state-owned oil company PDVSA for the San Cristobal and PetroCarabobo projects, under which its overseas investment arm ONGC Videsh (OVL) expects to become the sole operator of San Cristobal and a joint operator of PetroCarabobo within the next three to six months.

The proposed arrangements would give OVL greater control over field operations, production, marketing and the handling of revenues, potentially allowing it to monetise its investments more effectively after years of operational constraints and restrictions on accessing cash flows, the officials said.

"We are trying to see a new type of operating arrangement where we will take the operatorship, and we will run the project," an official said.

Discussions with PDVSA, other project partners and the Venezuelan government are at an advanced stage, he said, adding that the company had secured necessary approvals and clearances for the proposed arrangements.

"We expect that in the next three to six months, those agreements will be in place, and we will be the sole operator in San Cristobal, and in the case of PetroCarabobo, joint operators," he said.

The move could mark a significant shift in OVL's relationship with Venezuela, where its investments have been constrained by years of economic turmoil, deteriorating oilfield infrastructure, political uncertainty and US sanctions. The company has struggled to recover earnings from its Venezuelan ventures even as it retains substantial equity interests in the assets.

OVL holds a 40 per cent participating interest in the San Cristobal project through a joint venture with PDVSA and an 11 per cent stake in PetroCarabobo in the country's prolific Orinoco heavy-oil belt.

The two projects were originally intended to provide Indian companies access to Venezuela's substantial hydrocarbon reserves and diversify India's overseas crude oil portfolio. However, restrictions on financial transactions, operational difficulties and disputes over the management and marketing of production have limited their commercial contribution.

About USD 500 million in historical dividends from Venezuela remained outstanding. The company is examining whether the dues could be settled as part of the proposed operating arrangements or through a separate agreement.

The new structure, if concluded, would allow OVL to take a more direct role in producing and selling crude oil rather than relying on existing arrangements under which PDVSA has exercised operational control.

"Now, in the new arrangement, we will have offtake rights. We will be operating the project. We will update the produce. We will sell," the official said, explaining that the proposed framework would give OVL greater control over the commercial proceeds from its investments.