ONGC to buy, not drill, its way to output goal

India’s biggest oil explorer plans to snatch up producing assets to reach its goal of raising overseas output by more than half in about three years, a faster route than drilling for new reserves. ONGC Videsh Ltd., the overseas investment unit of state-run Oil & Natural Gas Corp., spent $2.2 billion last year on an existing Russian project, which raised production by 4 million tons, or 44 percent. The company still needs to add more than 7 million tons to achieve its target of 20 million tons by 2020. “Short-term production goals can only be achieved through producing assets because the exploration life cycle is very long,” Managing Director Narendra Kumar Verma said in an interview last week. “That’s why we are focusing on producing assets to boost production in short term.” Parent ONGC’s shares rose as much as 2 percent to 197.25 rupees and traded 1.3 percent higher at 9:30 a.m. on Tuesday in Mumbai. They were the top performer on the benchmark Sensex, which was up 0.1 percent. Prime Minister Narendra Modi is pushing India’s energy companies to raise domestic output and secure assets overseas to bolster energy security for a country that imports more than 80 percent of its oil. Adding supplies through the purchase of producing assets is a faster, and potentially more-costly, alternative to exploring and developing new fields. ONGC Videsh, the nation’s largest overseas oil and gas investor, is struggling to reverse declining output from Russian unit Imperial Energy Corp., which it acquired in 2008, revive assets in troubled Sudan and Syria, raise production in Venezuela and start pumping from Mozambique.

The company bought a 26 percent stake in Russia’s Vankor project last year from oil giant Rosneft, lifting its overall output to about 12.8 million tons in the year ended March 31, from 8.92 million in the previous year. The company expects total output to reach 14 million tons by March, with half of that coming from Russia. “Russia has been giving us good opportunities, and our governments share good relations,” Verma said. The company is working toward a more diversified portfolio, he said, “but if a good opportunity emerges again in Russia, we will not hesitate.”

The oil price crash that started in 2014 helped the company bulk up on assets that have been in production for years. Global benchmark Brent oil, which hit the lowest in more than a decade during January 2016, has recovered to about $65 a barrel. “Definitely the low oil price has offered a window of opportunity for us to consolidate and increase our footprint,” Verma said. “Gradually, people are reconciling with the low prices.”