ONGC Videsh to increase spending by 65% in FY24 to push overseas operations

ONGC Videsh (OVL) will increase spending by around 65 per cent to Rs 5,000 crore in the next financial year (FY24) from the current financial year to ramp up overseas operations as Russia’s Sakhalin-1 field emerges from force majeure and the chances of finding more oil in Colombia brighten, a top company official said.

OVL will spend around Rs 3,000 crore on its overseas assets, which include 33 areas in 15 countries, said Rajarshi Gupta, OVL managing director, in an interview at India Energy Week in Bengaluru. The company is looking at a mix of acquisitions and organic growth to meet an output target of 40 million tonnes of oil equivalent (MTOE) by 2040, Gupta said, which is four times OVL's current production.

Incorporated as Hydrocarbons India Pvt. Ltd. In 1965, the company was rechristened ONGC Videsh in 1989. Output peaked at 14.98 MTOE in 2019-20 fiscal before the decline started. OVL must add an unprecedented 30 MTOE annual production in 17 years from current levels to achieve its target. Latin America, Africa, and Russia are expected to play key roles in helping OVL achieve its long-term production targets, Gupta added.

"However, OVL needs to deal with the decline first. OVL's output will fall by around 2 MTOE to around 10 MTOE in 2022-23 fiscal from a year earlier after operator ExxonMobil declared force majeure at Sakhalin-1 in May, disrupting production", Gupta said. Exxon withdrew from Russia after the invasion of Ukraine prompted sanctions by western powers.

Overall output will rebound in the 2023-24 fiscal to around 12.5 MTOE, Gupta further added. Oil output is steadily increasing at the Sakhalin-1 project after a new Russian operating company was formed last year following Exxon’s exit. Sakhalin-1 production will increase to 200,000 b/d in a few months from around 150,000 barrels per day now, similar to what it produced before the war in Ukraine.

OVL holds a 20 per cent stake in Sakhalin-1. He said OVL is not facing issues related to its upstream assets in Russia and expects production to hold steady around pre-war levels. It has recently seconded some of its own employees to Sakhaklin-1 after a change in operatorship.

Oil majors including Shell, BP, Total, and Exxon exited Russia last year after Russia invaded Ukraine, leading to billions of dollars in losses in their investments. Gupta said that it was unclear as of now on the status of the equity held by oil majors in Russian projects. Russia has till date not sought any offers for the equity. Output from the Vankor field, in which OVL holds a 26 per cent stake, is currently running around 190,000 b/d, Gupta told.

"A block in Colombia is producing 22,000 barrels a day, and OVL may find more oil there as it drills more wells because of the prospects in the area", Gupta said.

Construction will resume at Mozambique LNG project after the security situation stabilises. OVL holds a 10 per cent stake in Mozambique LNG, which is well-positioned to supply LNG to India, once it is commissioned.

US sanctions stopped OVL from accessing dividend income from its stakes in the San Cristobal and Carabobo-1 oil ventures, and it is looking into the possibility of being paid in physical oil, Gupta said.

Production in South Sudan has stabilized, with the Sudan government allowing the transportation of oil out of the landlocked nation.