ONGC Chairman: 'Canada Oil Sands Not Feasible If Oil Prices Drop'

NEW DELHI (Dow Jones Newswires), September 29, 2008

Falling oil prices may diminish ONGC Ltd.'s interest in potentially investing in Canada's oil sands, Chairman R.S. Sharma said Monday.

Since 2006, before Sharma became chairman, ONGC has expressed interest in buying assets in Alberta, Canada. While a team from ONGC's overseas arm, ONGC Videsh Ltd. continues to consider this prospect, a decline in crude prices could drive ONGC away from such a deal.

Increasingly stringent regulations make investments in Alberta more expensive. Coupled with falling oil prices, the regulations may prohibit an investment from OVL.

"Because the legal framework there, the fiscal regime, the environmental issues, are quite stringent, our team is studying those aspects," Sharma said. "Based on that, opportunities will be evaluated." Sharma didn't give a specific timeline for this decision.

Producing oil in Alberta can cost $70 to $75 a barrel, because the region's oil is thick, sludgy, and difficult to extract. When the cost of complying with federal and state requirements is added, the project may be deemed uneconomical.

"One has to really take a call on the fiscal regimes, the other constraints, the cost aspects. Surely, interest will diminish when prices cool down to the two-digit level," Sharma said.

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