ONGC Videsh to seek CCEA nod for 27% more capex in Brazil

ONGC Videsh Ltd (OVL), the overseas arm of Oil and Natural Gas Corporation, which acquired a 15 per cent participating interest in a Brazilian oil and gas block in 2006 for $165 million, has seen its share in the capital expenditure going up by over 27 per cent, from $313 million to $400 million, due to imposition of fresh taxes and additional well costs. OVL will have to get the additional expenditure approved by the Cabinet Committee on Economic Affairs (CCEA), said a government official.

The additional expenditure has been recommended for approval to the CCEA by an empowered committee of secretaries last month. The block, BC-10, is located in the Campos Basin, 120 km southwest of Victoria City off the coast of Brazil. Shell is the operator in the block with a 50 per cent interest, while Petrobras has 35 per cent interest. The total capital expenditure is estimated at $4.98 billion.

By July 2008, the CCEA had approved investment of $478 million, which included an acquisition cost of $165 million, with a condition that OVL’s internal rate of return on the investment shall not be less than 10 per cent. “Oil production from the block has commenced in July this year, two months ahead of the September schedule. The production is expected to be ramped up to about 42,000 barrels per day by December this year, with seven wells. The oil reserves in the block have been revised downwards from 520 million barrels to 378 million barrels. OVL’s share in the reserves shall be about 57 million barrels,” he said.

Though the project is expected to turn cash-positive in 2010, the economics have been affected due to a downward revision in reserves, he added. Still, OVL expects a 10 per cent rate of return, since crude oil prices have moved up. Moreover, Shell has informed OVL that there is a possibility of finding more reserves.

OVL has been actively pursuing exploration and production opportunities in Brazil.