In a positive development for ONGC Videsh Ltd, the Mozambique government has agreed to offer cost-recovery rights to production and development of its gas field and the LNG terminal in the African nation. Gas from the field is meant for exports and is expected to boost OVL’s revenue and bottom-line in the coming years.
Narendra K Verma, managing director of OVL told FE, “The Mozambique Parliament has recently approved a new law, which allows cost-recovery for both the oil field and the (LNG) terminal.”
ONGC Videsh Ltd, the overseas arm of government-owned ONGC, teamed up with another state-run player Oil India Ltd and bought Videocon’s 10% stake in Mozambique’s Rovuma Area 1 for $ 2.475 billion in June, 2013.
Subsequently, in February, 2014, OVL on its own bought another 10% stake in the same field from Anadarko Petroleum Corp of the US for $2.64 billion. The 10% stake of Videocon purchased by OVL and OIL together is currently split in 6:4 ratio and total payout for OVL for the back-to-back acquisitions is $4.125 billion.
Verma said the gas sale negotiations were now being conducted with potential consumers. “OVL would start spending its share of $2-3 billion for the first two LNG evacuation trains starting next year (2016),” he said. The deliveries from Area 1 are expected in 2018.
It is believed that the cost of the LNG trains would be integrated with the upstream cost and the whole cost will be made recoverable under the exploration and production concession contract (EPCC) from the revenue streams.
Texas-based energy-exploration company Anadarko will continue to be the operator of the block, with its stake reduced to 26.5% from 36.5% after the deal. Rovuma Area 1 covers nearly 2.6 million acres in the deep-water Rovuma Basin, off Mozambique land and represents the largest offshore natural gas discoveries in offshore East Africa with estimated recoverable resources of 45 to 70 trillion cubic feet.
The project with capacity to produce 20 million tonnes of liquefied natural gas annually would be the world’s largest LNG export site after ExxonMobil-run Ras Laffan in Qatar.
In FY15, OVL production went up by 6% to 8.87 million tons of oil equivalent (mtoe) against 8.36 mtoe in FY14. In the current fiscal, it targets to cross 9 mtoe output.