The scientific and technical officers of Oil & Natural Gas Corporation, or ONGC, have objected to the company's decision to go ahead with the $2.1 billion acquisition of Imperial Energy of the UK, saying that the deal is over-valued and the assets not financially viable.
The Association of Scientific and Technical Officers (ASTO), the largest organisation of ONGC officers, has written to Petroleum Secretary R S Pandey and ONGC Chairman R S Sharma, complaining that the cost of acquisition and field development cannot be recovered since production at Imperial’s assets are in inhospitable geographies.
ONGC’s overseas arm, ONGC Videsh (OVL), on Wednesday posted bid documents for its 1,250 pence-a-share cash offer for Imperial Energy, tabled in August after getting the go-ahead from the Cabinet Committee on Economic Affairs (CCEA). That time, Imperial shares were trading at just 1,050 pence in the open market. The offer will be open till December 30, after which OVL will have two weeks to pay Imperial’s shareholders who tender their shares.
Crude oil has dropped 60 per cent since ONGC first offered to buy Imperial in August. This steep fall, along with the depreciation of the rupee against the dollar, has taken the sheen out of the deal.
“The quality of the deal is questionable. Russian companies such as Rosneft have refused to partner in the deal at this cost. It seems that Rosneft is aware of the real conditions of the field and the real worth of Imperial Energy,” Amit Kumar, president- central working committee of ASTO, said in the letter.
OVL’s bid gave the company a 10 per cent internal rate of return (IRR), taking crude oil at $121 a barrel, but with the fall of the rupee and crude oil the IRR has come down to 3-4 per cent.
“The current crude (oil) production of the company (Imperial) is close to 12,000 barrels a day only. This figure is also debatable as the technical team that visited the fields found that the production was around 8,000 barrels a day. The upside of production, as being planned, calls for huge investments in the field in addition to the investment being made to acquire the company. The field terrain is very tough and inhospitable,” said ASTO.
The access to the field for any developmental work and operations remains open for only five to six months in a year — that, too, in winters. “In this scenario, the anticipated increase in production is going to be tough and may not meet the targets set forth in coming years. It may also be noted that the production from this field can only be brought to the country at a very high cost,” said the association.
