Oil & Natural Gas Corp., India’s biggest energy explorer, said its overseas crude output will fall this year as fields age, and an increase is likely after new areas in Brazil and Myanmar start production by 2012.
ONGC Videsh Ltd., the unlisted overseas arm of the state- owned firm, may produce 9 percent less oil and gas at fields in Russia, Colombia and Sudan in the year to March 31, R S Butola, the New Delhi-based managing director of the unit, said in an interview. Output will probably fall to about 8 million tonnes, he said. That’s equivalent to 23 percent of ONGC’s total production last year.
“If we don’t buy any new assets or discover fields, production this year will be less,” Butola said by telephone yesterday. “Low prices are also a reason we aren’t increasing output at new fields.”
ONGC bought U.K.-based Imperial Energy Plc last year, India’s biggest overseas energy acquisition after being outbid by Chinese rivals in Nigeria, Kazakhstan and Canada. A plan to quadruple output at Imperial’s Siberian fields has been delayed because oil prices in New York have averaged $49 a barrel this year, about $70 less than the level in August when the transaction was first announced.
“ONGC has been taking steps to increase production at both domestic and overseas fields, but progress has been very slow,” said Rohit Nagraj, an analyst at Prabhudas Lilladher Pvt in Mumbai, who has an “accumulate” rating on the parent company’s stock. “Some new overseas fields will be put into production probably next year.”
India is targeting the equivalent of 60 million tons of oil from overseas by 2025, almost double the current output of the world’s second fastest-growing major economy. ONGC, supplier of 25 per cent of the country’s crude needs, has been struggling to increase production at three decade-old domestic fields.
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Most of ONGC Videsh’s overseas output is sold abroad. Earnings from oil sales overseas are used to invest in new fields.
“Lower output and lower prices could impact ONGC Videsh’s earnings,” said Vinay Nair, an analyst at Mumbai-based Khandwala Securities Ltd. “This should improve in the following year once production increases from new fields. Overseas production will drive ONGC group’s earnings.”
Output at ONGC’s overseas ventures may increase to 10 million tons in two years as fields in Brazil and Myanmar start production, Butola said. Russia’s Sakhalin-I field and Colombia’s Velasquez fee mineral project, which it operates in partnership with China Petroleum & Chemical Corp., may also produce more after drilling additional wells, he said.
ONGC Videsh plans to spend $1.8 billion on production and drilling this year, little changed from the period ended March 31, according to Butola.
The unit will focus on bidding for new fields in countries where it owns assets because it has good relations with their governments, the managing director said.
“Expenditure will also be less if we buy more in the countries we are present in as costs such as manpower are minimised,” he said.
The explorer has stakes in oil fields in Venezuela, Colombia, Brazil, Cuba, Trinidad & Tobago, Congo, Egypt, Libya, Nigeria, Sudan, Iran, Syria, Myanmar, Vietnam, Russia and Turkmenistan, according to its Web site.
“We don’t want to spread ourselves thin,” Butola said. “Our strategy would be to consolidate in countries where we are present.”
ONGC gained 1.7 per cent, the most since May 29, to Rs 1,132.15 in Mumbai. The stock has climbed 70 percent this year, outpacing the 57 percent gain in the benchmark Sensitive Index, as New York oil futures rose 55 percent and on reports saying the government may double the administered price of gas for domestic sales. Crude reached a record $147.27 a barrel in July.
The explorer, which bought Imperial Energy for 1.4 billion pounds ($2.2 billion) last year, may produce less than planned at the company’s field’s because of low prices, Chairman and Managing Director R.S. Sharma said March 26.
The firm’s bid for Imperial when oil prices were more than $120 a barrel and completed the acquisition in March, when crude had tumbled to less than $50.
The unit’s fields in Siberia produce around 8,700 barrels a day (435,000 tons a year) of crude, Butola said yesterday.
Imperial Energy had set a target of 35,000 barrels a day of oil by the end of 2009 and 60,000 barrels a day by the end of 2010, according to the company’s Web site.
“The focus is not on increasing oil production but on completion of studies of the field,” Butola said. “We are taking a long-term view.”