Sudan’s oil, gas block offer to India may fail to entice

KOLKATA (miningweekly.com) - Sudan’s offer of three more oil and gas blocks would face resistance from Indian national exploration and production (E&P) major ONGC Limited, as the company decided to slow or defer overseas investments in the wake of falling oil prices.

According to an official of ONGC Videsh, the overseas arm of ONGC, the national E&P company was experiencing income and cash flows challenges as a result of low oil and gas prices and this would crimp financing options overseas.

He said that with internal accruals slowing down, the company did not favour debt funding to acquire or increase stakes in overseas oil and gas assets even though the valuations of these were steadily falling.

The offer from Sudan, made earlier this month, would be viewed and assessed against the backdrop of a fall in appetite for new acquisitions and investments and ONGC’s decision to defer overseas investments, the ONGC Videsh official said.

“We have to factor in the new price realities. Our ability to acquire depends on the health of our parent, ONGC, and if it deteriorates, it will definitely impact us,” ONGC Videsh MD Narendra Verma said in a media statement.

“Everyone is scared. Bankers are scared. The cost of capital will increase and remuneration will go down,” he said.

Mining Weekly Online previously reported that the Indian government was working to incentivise upstream oil companies and the ONGC Videsh official said that local E&P companies were under a lot of pressure to maintain domestic exploration and production activities.

Under these circumstances, and with an added shortage of funding options, offers from overseas would not easily muster support with the board of directors of the respective companies.

Sudan had offered three additional oil and gas blocks to ONGC Videsh, which already operates the Greater Nile Oil Project (GNOP), in which it held a 25% equity stake and produced 50 000 bbl/d of oil. In addition, the Sudanese government was also keen that India pick up an equity stake in Block 17, which was already producing 7 000 bbl/d of oil, and that it also set up a coastal refinery linked to the block.

However, officials pointed out at least two possible deal breakers in the offer. Firstly, Indian national oil companies were not keen on investing in a refinery overseas as it would entail  agreements on assured offtake from the refinery which might not be a viable option when oil prices were diving.

The second issue was some $240-million pending from the Sudanese government, making up ONGC Videsh’s proportionate share of supplies made from GNOP.

Officials said that the Sudanese government proposal that pending dues should be offset against future supplies would not be acceptable back home as it would impact cash flow against investments made by ONGC Videsh.