New Delhi: Oilfield service contractors such as Halliburton Co. and Baker Hughes Inc. have withdrawn from the hydrocarbon assets of ONGC Videsh Ltd (OVL) in Russia after the US and the European Union (EU) mandated economic isolation for the Vladimir Putin government.
This is likely to hurt India’s efforts towards energy security. OVL owns a 20% stake in the Sakhalin-1 hydrocarbon block. OVL had bought the Russian assets of the UK’s Imperial Energy Corp. Plc in 2008.
India is trying to secure energy resources in Russia by leveraging its historical association with the nation. Indian investments in Russia, mainly in the hydrocarbon sector, total around $4.25 billion.
“We are not impacted by these sanctions but our US contactors in Russia such as Halliburton, Baker Hughes and Liberty Resources have withdrawn,” said N.K. Verma, managing director of OVL. “They have been replaced by the local Russian contractors.”
Halliburton and Baker Hughes are the world’s largest oilfield services firms and are set to be merged. Also, Denver-based Liberty Resources Llc, which was offered up to a 30% economic interest in Imperial Energy, has walked away from the $2.1 billion purchase of the overseas arm of state-owned Oil and Natural Gas Corp. Ltd (ONGC) in the backdrop of sanctions on Russia, a country in which India’s biggest oil and gas explorer owns stakes in significant hydrocarbon assets.
The EU and the US have imposed sanctions after Russia absorbed the Ukrainian region of Crimea following a referendum that approved the secession. It also comes at a time when OVL has expressed interest in exploration opportunities in Russia’s Arctic zone after India received observer status at the Arctic Council. It is also in talks with Russia’s OAO Novatek to secure a stake in its Yamal LNG (liquefied natural gas) project.
While OVL is unperturbed by sanctions imposed by specific countries, it “honours international multilateral sanctions such as those imposed by the United Nations or the EU”, Verma said.
The US and Russia have imposed sanctions and counter-sanctions on each other, targeting lawmakers and government officials. The sanctions have resulted in the freezing of assets within jurisdictions and barring domestic firms from conducting business in the other’s space.
Queries emailed to the spokespersons of ONGC, India’s oil ministry, Halliburton and Liberty Resources remained unanswered.
“Baker Hughes has a comprehensive programme to ensure it is in compliance with applicable laws and regulations, including compliance with US, EU, and other sanctions programmes,” a company spokesperson said by email. “While we cannot comment on the details of our customer relationships, Baker Hughes Inc. and its foreign subsidiaries are dedicated to compliance with all required trade restrictions on our international business.”
India is struggling to meet its ambitious targets for energy security, with the country having to import as much as 77% of its energy needs. Prime Minister Narendra Modi wants imports to be cut by half by 2030.
While Indian firms have been facing difficulties in countries such as Venezuela, South Sudan, Syria, Libya and Yemen, OVL’s strategy to be present in sanctions-hit countries is expected to bear fruit in the long run, as is being predicted in the case of Iran.
India is hopeful that its decision to continue to engage with Iran, disregarding Western sanctions aimed at stopping the Persian Gulf nation from developing nuclear weapons, will help it land lucrative oil deals in the country. “Although India’s energy needs are acknowledged by the geopolitical world, to get dispensation like we got for crude imports from Iran, wielding diplomatic strength is imperative,” said Deepak Mahurkar, leader, oil and gas at PwC India, a consulting firm.
“Many IOCs (international oil companies) and NOCs (national oil companies) have successfully managed global portfolios for decades despite the dynamic geopolitical status. Indian companies similarly have an opportunity to do so. Experience is that whatever it takes to achieve the objective of bridging energy needs will need to be done. The oil world has seen technology deployment, local relationships, cross-sector investments to defence support put to use for succeeding,” Mahurkar added.
ONGC has battled concerns over its domestic production capabilities and diminishing yields at its ageing oilfields. According to ONGC’s Perspective Plan 2030, the company is targeting the production of more than 130 million tonnes of oil equivalent in 2030, of which half will come from assets owned by OVL. OVL has set a target to achieve 20 million tonnes by 2017-18 from the current levels of 8.36 million tonnes of oil and oil equivalent gas.
India’s energy import bill of around $150 billion is expected to double to $300 billion by 2030. Things remain bleak on the domestic energy front as well. Interest in finding hydrocarbons has waned, with around 70% of Indian basins still largely under-explored.
According to the Energy Statistics report prepared by the ministry of statistics and programme implementation, the estimated domestic reserves of crude oil and gas are at 762.74 million tonnes and 1,427.15 billion cubic metres, respectively. India follows the US, China and Russia in energy use, accounting for 4.4% of global energy consumption.
Source: Mint; 07 April 2015