OVL set to rake in big bucks for its parent

NEW DELHI : ONGC Videsh (OVL), the overseas investment arm of ONGC, may soon become the moolah-raker for ONGC. It is estimated that ONGC’s overseas assets will account for almost 20% — about Rs 3,000 crore —of the total profit by ’08, with production pumping in from at least six of the oil assets. ONGC, which clocked in a net profit of close to Rs 15,000 crore in ’05-06, has acquired 24 exploration and production projects spread over 15 countries.

What’s more, while the crude oil produced by OVL through its assets overseas gets ONGC a realisation of almost $70 a barrel today, it ends up earning only about $45 a barrel on the sale of its domestic crude. The realisation from the overseas assets translates into higher margins for ONGC which is having to sell the domestic crude at heavy discounts to domestic refiners following the subsidy sharing formula.

It is estimated that by the end of ’08, OVL’s properties in at least six overseas oil blocks — Sakhalin in Russia, Greater Nile project in Sudan, Sudan 5-A, Syria Al Furat, Omimex in Columbia and Vietnam —will together account for almost 15% of ONGC’s total production.

According to a CLSA Asia Pacific market report on oil and gas, OVL is expected to generate a profit of $9bn by FY08, assuming a crude oil price of $52 a barrel. Crude oil prices have been ruling at an average of over $60 a barrel for the last two years and are unlikely to be lower than $50 a barrel in the medium term, analysts say.

OVL has been making major forays into overseas markets where there are possibilities of oil and gas assets.
OVL, which was an operator in 3 projects by FY05 and a joint operator in one project, is now operator in 8 projects and joint operator in 2 projects. OVL is also the fore-runner in several other acquisitions like Eucador, Encana, PetroKazakhstan, among others.

A report on the sector by Edelweiess estimates that given the production profiles from Sudan block 5 A and Sakhalin, OVL’s production should go up by 23% in the next two years. In fact, even today OVL’s crude oil production is second to only ONGC.