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Balaji C. Mouli

NEW DELHI, April 7

THE Government is actively considering the idea of ONGC Videsh Ltd (OVL), Indian Oil Corporation (IOC) and GAIL India jointly bidding or negotiating for overseas oil and gas exploration blocks.

Currently, the three State-owned oil majors do business on their individual steam, with OVL, the overseas arm of the Oil and Natural Gas Corporation (ONGC), being the most successful.

"We are looking towards an arrangement where, in future, all the three companies will leverage their strengths together to bag oil acreages abroad," a senior official said.

If it takes off, the first big project on the canvas will be to acquire a stake in the Kurman Gazi block, spread over Kazakhstan and Russia. The gigantic exploration block holds the prospects of reserves equivalent to the entire current ONGC reserves of around 6 billion tonnes of oil and oil equivalent. OVL had, late last year, submitted a non-committal bid to acquire a 10 per cent stake of the Kazakh State oil company in the exploration field. The Kazakhs are yet to get back to OVL.

The Russians, on their part, are said to have indicated to OVL that they would enter discussions for sale of their equity once OVL completes acquisition of Kazakh equity.

The idea to form a consortium of the three companies to bid for overseas projects has been proposed by IOC to the Government. It was recently trying to acquire 40 per cent of OVL's stake in the Greater Nile project in Sudan. OVL had, last month, acquired 25 per cent equity stake in the 12-million-tonne per annum oil-producing block from Talisman Energy, a Canadian company.

The proposal is stuck on two grounds. First, a technical snag. Such a farming of equity by OVL to IOC would require the consent of the other equity partners in the project. OVL got approval from the other foreign partners to buy out the entire equity from Talisman only after the Sudanese Government intervened and indulged in some backroom diplomacy. Against this backdrop, going back for the nod all over again is something the Government is not in favour off. IOC, after consulting its legal department, recently wote to the Government that it has worked out a legal model where the approvals are not required.

Another issue is the acquisition price. ONGC is clear that it will sell the equity at nothing less than market prices, which will mean a premium on its acquisition price.

In this backdrop, comes the Government's move to structure an arrangement where IOC, GAIL and OVL jointly bid for oil and gas acreages abroad. At an operational level, OVL enjoys greater flexibility compared to the oil companies in taking investment decisions as well as enhanced pace of decisions making.

The Empowered Committee of Secretaries, a body subordinate to the Cabinet, approves its mega-million dollar bids for acreages aboard. The other oil companies require Cabinet sanction, which is a tedious and lengthy process, blunting the pace of decision-making in the marketplace where other global majors are vying for oil properties. OVL also enjoys freedom to commit investments up to $50 million without any Government approvals.

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