We want to shed the 'junior partner' tag: N K Verma

Interview with Chief Executive Officer, OVL

ONGC Videsh Ltd, the Rs 22,000-crore overseas exploration arm of state-run ONGC Ltd, is emerging from a phase of constrained production. Newly appointed Chief Executive N K Verma tells Sudheer Pal Singh how the firm is trying to shed the “junior partner” tag and evolve into a full-fledged global exploration and production company, why hiving off OVL from ONGC is a bad idea and it may not be a proper time for listing. Edited excerpts..

OVL’s production hasn’t been impressive through the past few years. What is the outlook for production this financial year vis-à-vis lower global prices?

In recent months, our production had fluctuated on two counts. We were on a very strong trajectory of output growth, touching 9.5 million tonnes of oil and oil equivalent (mtoe) at a point. But the Arab Spring impacted us. Developments in Syria and Sudan have hit production. However, at the same time, assets in Azerbaijan and Myanmar are set to add to growth. Another reason for the production slowdown, of course, is the maturing of assets. These are routine issues and are being tackled through new exploration projects. In Columbia, for instance, we have found oil, which will come into production in due course.

What are the primary hurdles to meeting the production target of 60 mtoe by 2030?

First, I am looking at the 2018 target; we are targeting to more-than-double production to 20 mtoe by then. We will be able to expand the contribution from current assets to 10 mtoe; the other 10 mtoe will come from additional acquisitions. The portfolio mix will depend on risk profiles of assets, the conventional-versus-non-conventional element and the stage of development of blocks. The first challenge is to transform ONGC Videsh into a fully competent exploration & production (E&P) operator, rather than having a junior partner tag in the international E&P scene. This means scaling up competencies, building manpower skills, risk-taking ability and strategising for growth through exploration and new ventures. Concurrently, we will augment the organisational structure to take up bigger and more challenging projects as an E&P operator.

Do you think this will require hiving off the company from the parent?

I do not think so. In fact, ONGC Videsh is a growth engine for ONGC. ONGC has 34,000 employees and full capability in the entire gamut of the oil business. ONGC Videsh can leverage that. Also, the financial muscle of ONGC’s balance sheet is fully available to ONGC Videsh. Severing ties will mean ending these benefits. Currently, ONGC gets global assets availability and ONGC Videsh gets manpower, competencies and financial muscle from the relationship.

How will you fund acquisitions? Will you prefer using internal funds available with ONGC, tap the foreign bond market or seek syndicated loans?

There is no single and predefined strategy for funding. The mode of funding will depend on the number and size of projects, their location and the development stage of assets. The funding strategy is different for exploration and producing assets. Acquisition of producing assets can be funded through syndicated loans, but exploration projects essentially have to be funded through internal resources and generated surplus.

Do you think ONGC Videsh is ready for listing on exchanges, as has been talked about?

The primary motivation for listing any company is to leverage the full value for supporting growth and value realisation for stake holders. Value comes from the reserve base and portfolio of assets. Our portfolio is spread across 16 countries. But there are certain elements that might not allow us to fully leverage the capital, particularly those in challenging geographies. So, currently, it might not be a good strategy for us to go for listing. In any case, ONGC Videsh’s balance sheet is consolidated with the accounts of its parent, with embedded value reflection. ONGC Videsh has two objectives: expand in the global E&P space with commerciality and address the nation’s energy security. In case we list, our volatility might be undesirable. Currently, we find no problem in mobilising resources. We do not want to create additional vulnerability for the company on account of volatility and undue pressure for growth in emerging opportunity areas.

Are you in talks with Mexican oil firm PEMEX which invited participation recently for possible tie-ups?

We are definitely interacting with many global E&P majors including PEMEX for strategic partnerships as part of our business development strategy. Mexico is an important and new area opening up for international participation and we have strong focus there.