Improper evaluations by ONGC Videsh (OVL), the overseas arm of state-owned Oil and Natural Gas Corporation (ONGC) while investing in assets abroad has resulted in a losses of nearly Rs 2,300 crore, the Comptroller and Auditor General (CAG) said today.
The government auditor conducted a performance audit of 20 of the company's 45 Exploration and Production (E&P) assets for the period April 2004-March 2010.
"Certain inadequacies were noticed in due diligence process for evaluation of investment opportunities by the company (ONGC Videsh). As a result, the company incurred a loss of Rs 1,108 crore," the CAG said in its audit report.
Besides, the CAG found that OVL made "unrealistic" estimation of reserves and productions of Russia's Imperial Energy which it acquired in January, 2009.
"Unrealistic estimation of reserves/ production rate resulted in a huge loss of Rs 1,182.14 crore... Which could have been mitigated if the company had farmed out a part of its stake to a local firm," during the 15 month period from January 2009 and March 2010, the report said.
The report said OVL did not have a documented policy for evaluating investment opportunities, besides, non-compliance of basic tenets of the standard guidelines and practices of Petroleum Resource Management System for mitigating the risk.
The CAG said that out of 36 assets that the company acquired at the exploration stage at an investment of Rs 6,206.83 crore, only five have been successful wherein OVL was not the operator.
"As exploration and production is a high risk and capital intensive business, it is essential to mitigate the investment risk by exercising due diligence vis-a-vis investment opportunities and formation of joint venture," the CAG said.
The CAG also pointed out that OVL failed to conduct proper technical study and re-validate data while acquiring stake in exploration Block-5 B in Sudan which resulted in unfruitful expenditure of Rs 423.84 crore.
The company acquired stake in the aforesaid Block "despite its consultant's reservations regarding limited availability of reserve data as also security problems".
"The consortium could not implement the scheduled seismic and drilling plan and, in view of no hydrocarbon discovery, the block had to be relinquished," the CAG said.
Based on the performance audit of OVL, the CAG recommended that the company should formulate guidelines for opportunities for acquiring assets and formation of JV and also strengthening its internal audit and control system.
