Citing China & Japan, ONGC Videsh seeks sovereign fund for foreign buys

With international crude oil prices seeing a surge, ONGC Videsh has appealed to the Centre to create a sovereign wealth fund like that of China, Japan and Korea through which Indian companies can fund the acquisition of oil blocks abroad.  

The overseas subsidiary of Oil and Natural Gas Corporation (ONGC) has submitted the proposal to the petroleum ministry. 

The proposed fund could finance companies like OVL and Oil India to acquire more assets abroad so that at least 5 per cent of the country’s oil imports can be from India-owned oil assets. “We have approached the ministry in this regard. This comes as the company’s capability to fund overseas acquisitions is constrained since its parent company ONGC's balance sheet is under stress,” said a person close to the development. 

The early phase of OVL’s acquisitions have been funded by ONGC. ONGC was a zero debt company but now, it has a net debt of around Rs 140 billion.

OVL has a presence in 20 countries across 41 projects – with reserves of 711 million metric tonnes of oil equivalent (MMToE) – and has so far invested $28 billion in its blocks abroad. Though ONGC was a zero-debt company at a standalone level till last financial year, it had to borrow Rs 250 billion to fund the acquisition of government’s 51.1 per cent stake in Hindustan Petroleum Corporation (HPCL). It had earlier also bought GSPC’s stake in the KG basin block for Rs 77.38 billion.

“The acquisition of HPCL stake has created a lot of synergy in our business by increasing our presence in upstream, refining and marketing. HPCL's marketing presence has also helped our subsidiary Mangalore Refineries and Petrochemicals (MRPL), which was a standalone refinery,” said Subhash Kumar, director (finance) of ONGC, at a late evening press conference after the company’s annual general meeting on Friday. However, the acquisition has added stress to the company's finances.

OVL’s turnover, too, declined 53 per cent from Rs 222.24 billion in FY14 to Rs 104.18 billion in 2017-18, mostly owing to the lower prices during the time period. This is despite the company posting a compound annual growth rate of 14 per cent in production during the last five years. “With ONGC's balance sheet under stress, OVL’s capability to fund international acquisitions is going to be squeezed every day. Creation of a sovereign wealth fund is an ideal way to get over this and the uncertainty over oil and gas looming in India,” said another official on condition of anonymity. OVL's production increased from 8.36 MMToE in FY14 to 14.16 MMToE in 2017-18. 

Meanwhile, OVL said the issue between a consortium of companies in the Sakhalin-1 project and Russian energy giant Rosneft over sharing of gas has been sorted out through an out-of-court settlement by which $230 million was paid to Rosneft. The dispute was over the inter-linking of Northern Chayvo oilfield, controlled by Rosneft. 

In the Sakhalin-1 project, operator ExxonMobil owns 30 per cent in the project. Rosneft and ONGC control 20 per cent each while Japanese consortium Sodeco has 30 per cent.