The Oil and Natural Gas Corporation (ONGC) has deferred investments in Imperial Energy Plc to raise crude oil production and will rather consolidate the western Siberian operations of the UK-based firm it acquired recently.
ONGC Videsh (OVL), which earlier this month delisted Imperial from the London Stock Exchange after the $2.1 billion acquisition, was to invest about $1.5 billion in raising output to 35,000 barrels per day by the year end.
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"We have decided to do analytical and consolidation studies rather than investing more in raising output," ONGC Chairman and Manging Director and OVL Chairman R S Sharma told reporters on the sidelines of the CII annual conference here.
Pumping in more money to raise output had become unattractive after $100 a barrel was shaved off crude oil prices since August 2008, when OVL had bid for the Imperial, he said.
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"Production level will be lower than the previously targeted," he said. "We want to conserve the resources for better oil prices (in future)."
Imperial had projected crude output to rise to 25,000 bpd (1.25 million tonnes a year) by end of 2008 but actual production was hovering around 7,000 bpd. This was to increase to 35,000 bpd (1.75 million tonnes) by end 2009. It is currently around 10,000 bpd.
Sharma said the will conduct field studies and do preparatory work for ramping up output in 2010.
Crude oil prices have dropped to below $40 a barrel from $142 a barrel when OVL made the bid for Imperial in August 2008, deincentivising major capital expenditure.
"Given the significant drop in oil prices, various options including implementing lower levels of investment and production in the short term are being considered besides conducting developmental studies in respect of certain newer fields," Sharma said.
Imperial assets hold large potential upside for OVL which the company plans to tap going forward in future. Imperial assets are in Tomsk region of West Siberia, one of the world's most prolific hydrocarbon basins. Imperial Energy has independently audited inplace reserves of 920 million barrels of oil equivalent.
The acquisition price per barrel of oil equivalent comes to $2.18 a barrel, much lower than similar acquisitions in the region during the last couple of years. Russia's Gazprom acquired TomskNeft Gaz, which has assets adjoining Imperial, for $4.01 per barrel of oil equivalent.