Par Panel raps OVL for Imperial Energy acquisition

A parliamentary panel has rapped ONGC Videsh Ltd for not selling some of its stake in the Russia-focused Imperial Energy to a local company to cut its risk of production and oil reserves not meeting projections.
The Committee on Public Undertakings (COPU), which went into CAG's audit objections over January 2009 acquisition of Imperial Energy, in a report tabled in Parliament said it was "irked at the intransigent stand taken by the OVL justifying acquisition of Imperial Energy Corp (IEC)."
The Committee, which had last year sought review of the USD 2.1 billion acquisition, said OVL has not offered any explanation to oil reserves and production being below projections made at the time of the buyout.

While seeking Cabinet approval, OVL had projected that Imperial would produce 35,000 barrels of crude oil per day in 2009, which will then go up to 80,000 bpd by 2011. Also, it was stated that some stake of Imperial Energy will be sold to a Russian firm to hedge risk. However, Imperial, whose main assets are in Tomskh region of east Russia, has produced lower than projected output and reserves did not match the estimates.
"Except reiterating its earlier reply OVL has not offered any justification for its ill-conceived decision not to farm-out part of its stake in IEC to local Russian firms/ entities and its unrealistic estimation of oil reserves and production targets," COPU said in its report today.

It said the Oil Ministry's claim that post-acquisition IEC was successful in ramping up production from 6000 barrels per day to 19,200 bpc was "woefully short of the estimated production target ranging from 35,000 to 80,000 bpd."

Before the acquisition, the technical consultant and OVL had estimated the 2P reserves (that have 50 per cent chance of being produced) of Imperial Energy at 790 million barrels of oil equivalent and 825 million barrels of oil equivalent respectively. However after the acquisition, OVL had to reduce the proven reserve size by 1.527 million tons.
The panel said OVL has now informed that it is currently engaged in pilot scale application of a new technology in partnership with a US-based independent explorer.

"The Committee expresses the hope that the use of new technologies in the field of exploration of tight oil/gas reservoirs that are currently underway would help OVL to achieve turnaround in the performance of its asset," the report said.
The Cabinet Committee on Economic Affairs had approved the buyout of IEC on the condition that it would yield at least 10 per cent return on investment. But IEC continues to be loss making.