India’s ONGC plans $180bn spending spree
India’s Oil and Natural Gas Corporation plans to launch a “huge” global acquisition spree, as the state-backed energy flagship delivers an aggressive Rs11tn ($180bn) investment push to take on Chinese rivals and drive foreign production up sevenfold by 2030.
Dinesh Sarraf, ONGC chairman, said that the group aimed to raise its international oil and gas output from 8.5m tonnes of oil and oil equivalent last year to 60m tonnes over that period, as India prepares to meet projections of rapidly rising domestic energy demand.
The foreign expansion is likely to see India’s largest industrial company by market capitalisation ramp up operations in almost all of the world’s energy-producing regions.
“The kind of investments which we will require is huge,” Mr Sarraf told the Financial Times. “Our goals are so high we can’t pick and choose [parts of the world]; it will come from virtually everywhere.”
ONGC has historically been viewed as a conservative, midsized global energy player, held back by cautious management and risk-averse political leadership in New Delhi. It also has often lost out to more aggressive state-backed Chinese energy groups in the race to snap up foreign oil and gasfields, analysts say.
Recent years have seen a markedly bolder approach, however, following the launch last year of a strategy known as “Perspective 2030”, designed to bolster overseas operations. ONGC has invested about $7bn since mid-2013 to acquire foreign assets in countries such as Mozambique and Brazil.
Mr Sarraf pledged that this global expansion would now accelerate, potentially aided by a rapid recent fall in global oil prices. “We see this as a time we can make certain deals,” he said. “Prices are lower, and so some [new] deals may be available.”India is set to overtake China to become the largest source of growth in global oil demand by 2020, according to the International Energy Agency. Almost of all of this increase will be met via imports, given India’s limited domestic production.
ONGC – five key facts
• Involved in many of India’s largest global deals, including acquiring a $5bn stake in Kazakhstan’s Kashagan oilfield in 2012, and investing $5bn for stakes in two gasfields in Mozambique since 2013.
• Bought assets in Brazil, Bangladesh and Myanmar last year. It has a portfolio of 33 international hydrocarbon properties worth $15bn.
• Aims to raise total Indian and foreign output from about 60m tonnes of oil and oil equivalent last year to 130m by 2030.
• Has been criticised for failing to reverse production declines at ageing domestic oil and gasfields, where output dropped from 47m tonnes in 2005 to 45m in its 2014 financial year.
ONGC’s plans have been helped by recent economic reforms launched by India’s prime minister Narendra Modi, who last week moved to deregulate diesel controls and increase natural gas prices, boosting the energy explorer’s share price.
Later this year Mr Modi also plans to sell off a further 5 per cent stake in ONGC, which is 69 per cent-owned by India’s government, raising in the region of $3bn that could be used for further acquisitions around the globe.
Mr Sarraf confirmed that ONGC was considering an offer from Rosneft of Russia to invest in both its Vankor and Yurubcheno-Tokhomskoye oilfields in eastern Siberia, along with other potential assets in the Arctic region.
ONGC plans to build up its presence elsewhere in the former Soviet Union, he said. Expansion was also likely in Africa, in particular Angola and Nigeria, alongside large swaths of Latin America, and in both the US and Canada, where ONGC would consider assets ranging from shale gas to tar sands.Mr Sarraf took over as ONGC’s chairman earlier this year, having previously led the group's overseas arm, ONGC Videsh, and held positions in various other state-backed energy groups, including explorer Oil India.
ONGC generated revenues of Rs1.8tn ($2bn) during its past financial year, up 7 per cent from the previous year, but has struggled to raise overall production levels. Output from Indian oil and gasfields has declined over the past decade, including during the past financial year.But Mr Sarraf rejected concerns that ONGC’s expansion target would prove unrealistic, given its limited success increasing production and a shortage of appropriately-priced foreign assets. “It is very difficult. But it is achievable,” he said.
Mr Sarraf cautioned that ONGC would not follow the path taken by China’s energy giants, however, who he suggested had secured global assets by paying inflated prices.
“Whether we are more successful, or the Chinese are more successful, that is a matter of perception,” he said. “If success is defined in terms of making rational decisions, I would say we are more successful.”