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India's globetrotter

OVL has been spreading its international wings, a strategy that has so far yielded mixed results

Energy-hungry India, unblessed with the hydrocarbon riches of other developing economies and yet to see the fruits of a campaign to rejuvenate its own upstream, is looking further afield to secure its energy supplies.

India imports more than 82% of the crude oil it needs—around 3.78m barrels a day, according to the International Energy Agency. Production is just under 0.9m b/d. So the imperative is plain.

Undeterred by weak global oil prices, ONGC Videsh Limited (OVL), the overseas investment arm of the government controlled Oil and Natural Gas Corporation (ONGC), is leading the charge. This fiscal year, it will spend $150m in exploration, drilling more wells in Colombia, where it just made a commercial discovery, as well as in Kazakhstan and Bangladesh.

Reports suggest that OVL, which operates the CPO-5 block of Colombia, made a commercial discovery in its exploration well Mariposa-1. Drilling in a Kazakh Caspian block is underway and the well in Bangladesh is nearing completion.

It's by no means the company's first foreign foray. OVL now holds stakes in 37 oil and gas projects in 17 countries—together, they produced almost a quarter of its oil and 18.9% of natural gas in the 2017 financial year, a sharp rise on the year before. The firm is understood to be exploring upstream-asset purchases in Africa, the Middle East, Central Asia, Latin America and Southeast Asia. It wants to produce more than 14.3m tonnes of oil and gas equivalent from overseas assets in the 2017-18 fiscal year (up from 12.6m toe this year).

Russia is key. An OVL-led consortium recently increased its stake in East Siberia's Vankor field, a partnership with Rosneft, and the partners want output growth of 15% in the coming year. Production is currently 421,000 b/d. OVL and other Indian partners in the consortium, including Bharat Petroleum, Indian Oil Corporation (IOC), and Oil India Limited (Oil), together paid about $4.2bn to take their holding to 49.9%.

Not everyone is impressed with OVL's strategy. Although energy security has always been in the mandate, OVL's foreign interests have increasingly been purely commercial—and on that score, some analysts say the dividends have been weak and the asset-range lacks heft. Alay Patel, an analyst covering India for Wood Mackenzie, a consultancy, says that despite the Russia acquisition "OVL's portfolio is thinly spread and lacks scale—particularly when compared to some of its regional peers. It needs to make more acquisitions and progress exploration blocks to the development stage in order to meet ambitious production targets."

India imports more than 82% of the crude it needs

The company is still spreading its wings. OVL has also entered into an agreement with Tullow Namibia to buy a 30% participating interest in a project there. In another development, OVL secured a two-year extension to explore a Vietnamese oil block in the contested waters of the South China Sea. Last year, it signed a deal with Venezuela's state-owned company PdV to redevelop the San Cristobal oilfield—a move putting Indian interests at the heart of Venezuela's troubled oil sector.

Indeed, OVL hasn't shied away from geopolitical risk, managing—or sometimes shutting—operations in Syria (under force majeure), South Sudan, Iran, and Libya in recent years.

The risk hasn't always paid off and some deals have failed to materialise. In Iran, for example, OVL pledged to invest $11bn to develop the 12.8-trillion-cubic-feet Farzad-B gasfield, including a liquefied natural gas plant. The Indian firm and its partners IOC and Oil, had discovered the field in 2008 and believed they were in prime position for the contract. But it remains unsigned, hamstrung now by the testy politics.

All told, the foreign strategy has been mixed. Among the successes was the purchase of Imperial Energy, back in 2008, beating Chinese and other investors to some prized assets in Siberia. Likewise, points out Patel, the Vankor acquisition already looks like it will add value—a smart, counter-cyclical purchase. On the other side of the ledger, though, the entry into Mozambique, where OVL took stakes in gas developments in the Rovuma Basin in 2013-14, has been less fruitful—the LNG developments have been slow to get off the ground and global supply will be in surfeit for some time. And geopolitical risk in some countries is also a headwind. A tighter focus on more stable countries like New Zealand, Myanmar and Bangladesh seems a new theme.

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