Courtesy of The Financial Express, a report on ONGC Videsh Ltd’s (OVL), the special-function arm of state-owned oil and gas producer ONGC, efforts in finding equity oil abroad especially in Iran. As the article  notes:

“Iran is strategically important for us, as in a world worried over the progressive depletion of hydrocarbon reserves it is the second largest oil-reserve-holding country after Russia with estimated reserves of 800 trillion cubic feet (tcf). In fact, the projects at Rostam and Raksh oil fields in Iran were among our early initiatives immediately after the company was formed out of the erstwhile Hydrocarbon India Pvt. Ltd in 1989. We already have an exploration block in Persian Gulf—the Farsi offshore block—which we had won in December 2002 through auction.

We had faced some problems in carrying out the drilling there due to the US sanctions on Iran. But we managed to move our own rigs from here in India and have since successfully completed drilling in four wells. The estimated gas reserves of the block, as approved by the Iranian authorities, are of the order of 12.5 tcf. To put that in perspective, our domestic KG basin gas reserves are currently estimated at around 10 tcf.

In the recent talks in Delhi between ONGC management and the Iranian team led by Iran’s deputy oil minister and managing director of National Iranian Oil Co (NIOC) Seifollah Jashnsaz, it was decided that the first right to develop the block would be awarded to us. We are in the process of entering into a development service contract with the National Iranian Oil Co. The Iranian minister also indicated their government’s willingness to partner with us for other blocks potentially bearing rich gas reserves.

We are also considering picking up a stake in the $7.5 billion joint development programme for Phase 12 of the gigantic South Pars gas field, by partnering with NIOC and Petropars, another Iranian company which has the development rights for the field. An MoU to this effect has already been signed. Angola’s national oil company Sonangol has already taken 20% interest in the field. Seperately, the Hinduja Group has also signed an MoU with the Iranian national oil companies to participate in the Phase 12 development programme, which is expected to yield 30 tcf of gas. Between us and Hindujas, 40% equity interest in South Pars Phase 12 could be shared, although the exact modalities are being worked out.

We, along with Petronet LNG, would also get a part of the Iran LNG’s project that will convert the gas from South Pars Phase-12 into liquefied natural gas. We hope to bring a part of LNG to India.

Both Farsi and South Pars Phase 12 are strategically apt for us as the Persian Gulf region is closer to us than many other oil/gas bearing areas.

Has OVL’s effort to pursue equity oil abroad helped reduce India’s oil import bill?

It is ultimately a question of price. We also sell oil and gas from our producing fields in Russia, Sudan, etc to Korean, Japanese and other consumers. We bring the products to India if the Indian buyer offers a higher price. So, commercial considerations are important for us, being the wholly owned arm of ONGC, a listed company. But being a national oil company with a mandate to safeguard the country’s energy security, we would have to necessarily bring the output to India during emergency situations.

Cost of production is a function of various challenges involved. With the depletion of world’s hydrocarbon resources, most of the new exploration is taking place in more difficult terrains—deep water and frontier areas—which demand large investments. When the costs go up, oil prices would also go up, and there’s no escaping that. So, our principal objective is to increase the country’s access to equity oil, rather than worry too much about cost.

By the way, MRPL has already sourced four cargos of oil from our Sakhalin II (Russia) project at a commercial price and appreciated the quality of the crude. It may also be noted that Reliance Industries is exporting petroleum products to state-owned oil companies of Venezuela, Columbia and Brazil.

What is the level of aggregate investment OVL has made since its inception?

It is around $11 billion. More than 55% of the investments have already been recouped, so the outstanding is of the order of $5 billion. As a profit-making company, we are working under tough and very competitive conditions.

Last year (2008-09) we made a profit of Rs 2,807 crore despite the fact that oil prices fell in the later part of the year. That was at a weighted average price of $85 a barrel for the full year. This year, the running average is $60-65 a barrel, and we would still be making some profits. When oil prices came down by 50-70% last year, our profits dipped by 50%, and this would be the case with most companies like us.

Of course, our parent company would be more acutely impacted by the fluctuations in crude prices than us because of its burden of subsidy payouts to downstream oil market companies. OVL’s relative immunity to prices would get reflected in ONGC’s balance sheet.

We don’t retain any surplus rupee funds with the company, except for meeting day-to-day expenses, as part of fund management practices. We have also been able to achieve considerable progress in the formulation of development schemes in Myanmar, Iran and Brazil.

What is the level of ambition of OVL?

We’ve produced 8.7 million tonnes of oil/gas from fields last year; the year before that the figure was 8.8 mt. This year, we expect to produce around 8 mt—6 mt of oil and 2 mt of gas. Our target is to have a production base of 20 mt by 2020 in any given year and accordingly plan our exploration and development efforts.

To increase production at the desired pace, we will have to have a balanced portfolio approach—a judicious combination of producing, discovered and exploration assets. In keeping with this strategy, we now have a predilection for discovered offshore fields with potential to further discover and develop. The advantage with these blocks is that it takes you just 3-4 years to start production whereas it takes 6-10 years to begin production from an exploratory block. We have nine producing assets, five under-discovery fields and 24 exploratory blocks. Recently we have commenced production at blocks in Myanmar and Syria. In fact, we could double the production from the Imperial Energy blocks in Russia we had bought in December last year for Rs 9,100 crore.

Globally, competition to buy good oil/gas properties has become very intense. The size of the new discoveries are generally not very large, indicating the depletion of the reserves. Good assets on the block are very limited. In an average 20-25-year life span of a producing field, a peak production period is achieved and then there would be a gradual decline.

The government has been consistently supportive of our efforts to pursue equity oil abroad. With its continued support, we would be able to achieve the target.

Which are the oil rich regions that are high on your radar?

Our focus area continues to be Russia and CIS countries, West Africa and the Middle East, but we’re keenly aware of the potential of South America.