In what could put a spoke in the wheels for the Oil and Natural Gas Corporation (ONGC) in its $1billion (Rs. 5,500 crore) acquisition in the oil producing ACG field in the Caspian sea, the finance ministry has alerted the Cabinet Committee on Economic Affairs (CCEA) to risks and limitations under which the deal could have been finalised.
The buyout is significant for ONGC, marking the entry of its global arm, ONGC Videsh Ltd (OVL), in Azerbaijan. The ACG fields are about 95 km off the coast of Azerbaijan, and is the largest oil and gas field complex in the country. UK’s BP is the operator of the ACG fields, which produce around 35 million tonnes per annum of crude oil —more than India’s annual oil production.
Government sources confirmed that ONGC’s acquisition may come up for approval at the CCEA meeting on Thursday. The issues raised in the finance ministry’s January 18 note “were crucial” and would be taken up before a decision is taken, they said.
The points raided by the finance ministry include “limited data availability on the basis of which technical advice was finalised (by ONGC).”
The note cautioned that the “production estimates (for oil) may not be completely correct”, and said that while the finance ministry supports the deal, it “also suggests that these risks ... are brought to the notice of the CCEA."
The note also pointed out that “the production sharing contract (PSC) for the oil field may not be extended beyond 2024” which “may result in sharp fall in the Internal Rate of Return”.