ONGC Videsh betting on Imperial Energy’s shale reserves
ONGC Videsh (OVL), the overseas arm of the state-run explorer Oil and Natural Gas Corporation, does not plan to get out of the Imperial Energy fields in Russia anytime soon despite declining output, $400 million write-down and withdrawal of sanction-hit oilfield services firms delaying exploration, its managing director said.
A sharply lower than expected output clouded the prospects at the Russian fields operated by Imperial Energy, a fully-owned subsidiary of OVL, setting off speculation that the Indian parent might just exit the asset. Questions have also been raised about the $1.9 billion buyout of Imperial Energy in 2008 when oil prices were more than double the current level.
However, OVL is betting on striking gold in Imperial’s shale reserves in Bazhenov, Russia and getting a larger share in the potential profits after Russian government reduced taxes.
“It’s huge. It’s about 13,000 sq km. We will continue to work on this,” managing director Narendra Kumar Verma said, referring to the attraction of the shale reserves in Bazhenov and the potential profit it can generate if OVL gets it right. “Let’s see if we can survive.”
Bazhenov is estimated to hold as much as 360 billion barrels of recoverable reserves but has proved hard to drill so far. “All western services are not available because of sanctions,” Verma said, adding oilfield services firms Baker Hughes and Liberty Resources have ended contracts to drill Imperial’s shale-oil fields in Bazhenov. US sanctions, following Russian incursion in Ukraine, bar western firms from offering services in Russia. Imperial, as a result, will miss its shale exploration deadline of July by at least “a few months,” Verma said.
Meanwhile, Russia has reduced the mineral extraction tax, which will allow an explorer to make about $36 on a barrel of oil sold for $100, unlike $21 earlier, Verma said. Lower taxes are meant to incentivise drilling. With the decision to buy an underperforming asset such as Imperial Energy being increasingly questioned, Verma said the lesson is to be “more cautious while acquiring initial stage project” in future. “Less data was available. We had judgmental error,” he admitted.