Par Panel seeks review of OVL's Imperial Energy acquisition

A Parliamentary Committee has sought a review of ONGC Videsh Ltd's USD 2.1 billion acquisition of Russia-focused Imperial Energy after production and oil reserves turned out to be way below projections made prior to the purchase.
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 the Cabinet Committee on Economic Affairs had approved the buyout of the firm on the condition that it would yield at least 10 per cent return on investment.
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.
"Due to unrealistic estimation of reserves/production, OVL has suffered a huge loss of Rs 1182.14 crore during the period 2008-09 and 2009-10. Since OVL did not chose to farm-out part of its stake to a local partner, the entire loss has been borne out by it," COPU said in its report.
Also, the company had suffered a production loss of 10.8 million barrels and had not been able to achieve the stipulated 10 per cent internal rate of return.

"OVL's contention that though (Russian firm) Rosneft initially expressed its willingness to partner in the project but withdrew from the same in October 2008 due to various compulsions, is devoid of merit as the acquisition was done only in January 2009 i.E. Three months after the withdrawal of Rosneft," it said.

Petroleum Ministry's admission that the production levels of Imperial Energy have not been commensurate with the levels envisaged at the time of acquisition primarily due to unforeseen geological complexities, is a "tacit admission" of the shortcomings pointed out by CAG, it added.
"The Committee therefore desire a comprehensive review of this acquisition and its performance along with its future prospects so as to arrive at a well considered decision about its future," COPU report said.

The Comptroller and Auditor General (CAG) had in a 2011 report stated that Imperial had been able to achieve production of only 15,803 bpd as against the envisaged production levels of 35,000 bpd at the time of acquisition.
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.