ONGC Videsh may surrender Vietnam block

26-Apr-2012 Intellasia | WSJ | 7:05 AM Print This Post

India’s ONGC Videsh Ltd may surrender a second deepwater offshore block in Vietnam due to high exploration risks, a senior executive at the overseas investment arm of state-run Oil & Natural Gas Corp. said Tuesday.

Block 128 is adjacent to Block 127, which ONGC Videsh gave up to state-run PetroVietnam in the financial year ended March 2011 after failing to discover hydrocarbons. ONGC Videsh won the contract in 2006 to jointly explore with PetroVietnam in Blocks 127 and 128 in the Phu Khanh basin, in the South China sea.

“We will recommend to the board either to provide for higher investment for exploration, considering the difficulties in drilling, or relinquish the block as the adjacent Block 127 didn’t yield any hydrocarbons,” the executive said, asking not to be named. “All this is part of normal technical evaluation process.”

The board’s decision will be conveyed to the oil ministry for final approval, the executive said, without giving any time frame.

The move follows a warning last year by China to the New Delhi-based company that its exploration plans in the two blocks are illegal as Beijing has territorial claims over the area.

The potentially energy-rich South China Sea is also partly claimed by Malaysia, Brunei and Taiwan and is regarded by US officials as one of the biggest potential military flash points in the region.

India has maintained its activities in the South China sea are purely commercial and that sovereignty issues must be resolved peacefully by the countries laying stake to the area.

The ONGC Videsh executive said, however, that any recommendation to give up Block 128 will be based on pure commercial reasons and that China “isn’t a factor” in making any decision.

Surrendering the second block will likely hurt ONGC Videsh’s plans to achieve its goal of getting 35 million tonnes of oil and gas from overseas assets by 2030. Output from overseas assets was 9.448 million tonnes of oil equivalent in the year ended March 2011.

ONGC Videsh operates one gas field-Block 06.1 in the Nam Con Son basin off Vietnam’s south coast-in a joint venture with TNK-BP and PetroVietnam, which China hasn’t protested over. The Indian company has a 45 percent stake in the block, with the remainder held by TNK-BP and PetroVietnam.

ONGC Videsh has already suspended operations at Block 128 as it hasn’t been able to drill wells due to difficulty in anchoring at the hard sea-bed location. It had plans to restart drilling in 2012 subject to successful field testing of anchors.

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