ONGC’s international arm ONGC Videsh (OVL) is set for one the biggest write-downs in its history, due to falling crude energy prices. While most global energy companies have seen asset values erode due to the sharp fall in oil prices and have taken write-downs, OVL is still to declare the hit to its overseas portfolio.
The company, with 36 oil and gas projects in 17 countries, will provision for impairment charges in the quarter ending March as its parent ONGC last month provisioned for impairment charges of Rs 3,994 crore, which pulled down its net profit by 64% to Rs 1,286 crore.
ONGC chairman Dinesh Sarraf told The Hindu , “Yes, we are looking for providing impairment charges for OVL in the March quarter. The amount will be only known after the quarter ends.”
The write-down in the value of OVL investments along with its parent in the March quarter is likely to touch the $1 billion-mark, according to estimates, as the company has faced a significant erosion of net asset value across assets. Some of these were acquired as recently as two years ago, especially the Mozambique gas assets. In 2014-2015, OVL bought a 16 per cent stake in the Mozambique block for $4 billion when gas prices were $15 per mmBtu.
“OVL will have to significantly cut down the value of its investments in Mozambique block, given gas prices have fallen below $7 per mmBtu. At current prices, we expect OVL’s Mozambique investment to be under water,” said a Mumbai-based oil analyst.
In terms of reserves and production, OVL is India’s second largest petroleum company, next only to its parent ONGC. OVL produces from 13 assets and has four more discovered assets in various stages of development. It alone contributes to about 15 per cent of the country’s oil, and 12.5 per cent of its oil and natural gas production.
ONGC Videsh, with estimated reserves of 647.485 metric million tonnes of oil equivalent, produced 8.874 MMTOE for FY15. In 2012, OVL had to provision $408 million (Rs 1,953 crore) for UK-based Imperial Energy Corporation, which it bought in 2009 for over $2.1 billion. Other OVL oil assets facing the risk of devaluation are in Brazil and Russia.
