India's Overseas Oil Resource Target Stymied By Crude Collapse

(Bloomberg) -- The chance to gobble up cheap assets after oil’s collapse to the lowest in 12 years is slipping out of reach for India’s biggest overseas producer.

Oil’s rout has erased earnings at ONGC Videsh Ltd., the state-backed energy explorer, threatening the company’s aim to more than double output by 2018. Production rose 6 percent in the year ended March 2015 to 8.87 million tons of oil equivalent, the company reported on its website.

Oil’s collapse has wiped out the company’s buying power and has complicated Prime Minister Narendra Modi’s efforts to secure supply for a nation that imports most of its oil and natural gas. The company in September agreed to pay $1.27 billion for a 15 percent stake in OAO Rosneft’s Vankor field, one of Russia’s largest projects. That gives it an annual production boost of about 3 million tons.

“When oil prices are low, we get stronger bargaining power,” Narendra Kumar Verma, managing director of ONGC Videsh, said in an interview. “But if we are struggling to manage our own balance sheet, then this opportunity can’t be capitalized.”

ONGC Videsh, the overseas investment unit of India’s state-run Oil and Natural Gas Corp., reported a loss of 1.84 billion rupees ($27 million) in the first six months of the year ending March 31, according to its website. The company produced 5.53 million tons of crude and condensate and 3.34 billion cubic meters of gas in the previous full fiscal year.

The company has invested $23.8 billion in oil and natural gas assets outside India since its creation in 1965 until last year. It plans to increase output to 20 million tons of oil equivalent by March 2018 and 60 million tons by 2030, according to its annual report last year.

“It doesn’t have the appetite for another big ticket acquisition anytime soon, unless the government forces it to do so,” said Dhaval Joshi, a Mumbai-based analyst at Emkay Global Financial Services Ltd. “There is a lot of pressure on output and margins are low.”

Last week, Moody’s Investors Service put the credit ratings of ONGC Videsh and its parent on review for downgrade along with several other energy companies around the world after the slump in oil prices. The ratings agency expects the slower recovery in prices will lead to lower cash flows for oil producing companies such as ONGC, leading to financial stress.

To contact the reporters on this story: Debjit Chakraborty in New Delhi at dchakrabor10@bloomberg.net; Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net; Ramsey Al-Rikabi in Hong Kong at ralrikabi@bloomberg.net. To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net; Pratish Narayanan at pnarayanan9@bloomberg.net Abhay Singh

Copyright 2016 Bloomberg News.

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