ONGC Videsh Ltd, the overseas investment arm of public sector exploration major ONGC, is looking to set up a crude oil trading vertical soon. The company, which is traditionally into the business of exploration and production, proposes to set up this vertical once it has sizeable hydrocarbon volumes to sell.
OVL is in talks with international players to set up a desk overseas.
“We aspire and aim to develop our own marketing capability to capture better value of our hydrocarbons and whatever we produce — actually a downward integration to capture better value for our produce,” Narendra K Verma, OVL, Managing Director, told BusinessLine.
Narendra K Verma, Managing Director, OVL
Asked if this was meant to help the Indian public sector oil refiners in getting committed supplies and good price, he said: “This is a purely commercial decision for OVL. Right now, OVL sells its crude through a tendering process, which has its own problems. Having a trading desk will make the task easier.”
Verma, however, remained tight-lipped on how soon the vertical will be in place and who will be the chosen partner, due to commercial reasons.
From its 14 producing assets OVL has produced 4.137 million tonnes of oil and 2.558 billion cubic metre of gas for the first nine months of fiscal 2016, which was close to the same period previous fiscal (4.144 mt of oil and 2.419 bcm of gas).
While he is looking at downward integration, Verma is also aware that fall in crude oil prices has adversely affected the working of OVL, just as it has impacted the operations of other international players. OVL had optimised its capital expenditure for 2015-16 by 20 per cent to ₹8,000 crore.
“This is a global phenomena and OVL is no different. All exploration and production companies in the international arena are impacted by the decline in crude prices. Everyone has tried to reassess, re-evaluate and optimise their capital and operational expenditure in light of the new oil price regime,” he said.
“Even super majors also reported an adverse impact on their balance sheets and we are no exception. While the crude prices decreased, the cost of exploration and production activities has not reduced at the same rate, except some expenditure on services,” Verma added.
OVL has also been going through a consolidation process, which according to Verma is a “continuous process. We keep evaluating our portfolio and balance it with reference to the new realities of the business globally.”
While the company does not want to restrict its hunt for hydrocarbon acreages to any particular region, Verma said, “Africa is a happening place for E&P. At the recently held India Africa Summit, we had some good meetings with the delegations that came. We have some leads and we will follow those.”
OVL also proposes to expand its ties with Russia. Asked what has changed in terms of doing business with Russia, as the country has its own way of doing things, including tax issues, he said,
“Russia has a typical tax regime where both high-end and low-end are capped, except two projects under the production sharing contracts — Sakhalin I & II, one of which we are partners in — all other projects in E&P are guided by their tax regime. The tax regime has got a positive as well as negative”.
“In the low oil price environment, it gives comfort to the operators as net backs don’t slide down pro rata because the government take also slides down,” he added.