Taking a Toll on Recoveries

Sudhir Vasudeva
Chairman & Managing Director, ONGC,
Geopolitical issues and political unrest are giving a run to oil companies for their recoveries. This interview summarises impasse between Sudan and South Sudan, political disturbances in Syria, challenges arising out of such situations during overseas assets acquisition in these countries and future plans. Sudhir Vasudeva, Chairman & Managing Director, ONGC, exclusively talks to Offshore World about the geopolitical issues faced by ONGC, challenges during acquisition of the assets and future plans in such situations. Excerpts:

What are the geopolitical issues in Sudan, South Sudan and Syria which are directly affecting production from the assets in these countries?
After secession of South Sudan from Sudan in July 2011, majority of oil producing areas of approximately 60 per cent with reserves of about 55 per cent of Block 1, 2 & 4 [Greater Nile Oil Project (GNOP)] and entire Block 5A are situated in South Sudan whereas majority of processing facilities and Crude Oil Transportation System (SCOTS) along with export terminal are situated in Sudan and therefore, South Sudan, being a landlocked country, has to depend on Sudan for use of all these facilities for export of its crude oil in the international market.

Post secession, Sudan and South Sudan had a number of political and economical issues to be resolved. Due to differences on commercial terms for the transport of crude oil produced in South Sudan by using the facilities of Sudan and in response to confiscation of its oil cargoes by Sudan, the Government of South Sudan suspended all petroleum operations and production from all its producing assets in South Sudan in January, 2012.

The continued impasse and mistrust between the two countries led to invasion of GNOP’s Base Camp and Central Processing Facility (CPF) situated in Heglig field in Sudan in April 2012 and resulted into severe damage to the production facilities in the field. Due to this, the crude oil pumping from Heglig CPF to Marine Terminal was stopped, which was resumed again in early May 2012 after carrying out major repairs and mobilisation of new power generators.

Consequent to intervention by the United Nations and under the auspices of African Union High-level Implementation Panel (AUHIP), both Sudan and South Sudan could resolve their key differences and signed the ‘Cooperation Agreement’ in September, 2012 covering all the major issues between the two countries. The agreement on ‘Oil and Related Economic Matters’ referred to as ‘Oil Agreement’ was also signed, which covered the commercial terms and fees on crude oil of South Sudan for processing, transportation and transit for export by using facilities in Sudan.

Production from Block 5A and Block 1, 2 & 4 in South Sudan resumed on 6th April and 13th April, 2013 respectively.

In June, 2013, Sudan accused South Sudan of extending support to some rebel groups of Sudan and threatened to stop flow of crude oil from South Sudan. However, with intervention of AUHIP and other world leaders, the matter was resolved peacefully and Sudan lifted its threat of stopping of crude oil flow from South Sudan on 5th September 2013.

Though some of the outstanding issues between Sudan and South Sudan are yet to be resolved, both the countries have been seriously involved in meetings between the top leadership of the two countries and have taken a number of confidence building measures to ensure continued flow of crude oil from South Sudan using the facilities in Sudan.

In Syria, the political unrest against the existing regime started in March 2011. Due to EU sanctions on Government Oil Companies in Syria, foreign partners in AFPC Project declared Force Majeure with effect from 2nd Dec 2011. Syrian employees and Management in AFPC continued to produce oil till December 2012 from AFPC oilfields till it was impossible to produce due to oilfield areas being in control of rebels. In Block 24, oil production discontinued in May 2012. At present, there is no production from the Syrian projects as the oilfield areas are in control of rebels, refineries and pipelines in control of Government of Syria.

What challenges did ONGC face during acquisition of assets in these countries?
Acquisition of oil & gas assets overseas is a challenge in almost all the countries be it Sudan, South Sudan, Syria or any other country. Challenges are in terms of competition, geo-political situation, political relationship with India, security situation etc. So, we deal with each specific acquisition according to the ground realities.

In terms of balanced portfolio, ONGC is trying to have a balance of investments in politically stable countries and otherwise from risk management perspective.

At the time of acquisition- Block 24 in 2004 and AFPC project in 2005, the political situation in Syria was normal and there were no challenges during that period.

What are ONGC’s future plans in such situations as the company is facing production challenge in such overseas assets?
  1. OVL along with other consortium partners CNPC of China and Petronas of Malaysia are constantly engaged with the Governments of Sudan and South Sudan. This also includes diplomatic efforts to create an atmosphere of trust, cooperation and peaceful border conditions to continue petroleum operations that would be congenial for sustaining oil production in both the countries.
  2. The secession of South Sudan in July 2011 and subsequent security incidents in GNOP areas in 2012 have resulted into sharp decline in production from Sudan and suspension of petroleum operations in South Sudan during FY 2013. In order to increase production, OVL along with other consortium partners have undertaken several measures like drilling of more wells, early monetisation of new discoveries and implementation of other production enhancement activities.
  3. Production from Block 1, 2 & 4 and Block 5A has been partially resumed from April 2013. The Joint Operating Companies of Block 1, 2 & 4 and Block 5A in South Sudan are in the process of resumption of other field activities like repair of sick wells, drilling of new wells and other related activities.
  4. Further, OVL along with other foreign partners of the consortium have been making sustained efforts towards expansion of their activities and increase production from Sudan and South Sudan.
In Syria, on resolution of political problem and improvement of security situation, OVL can resume operations in Syria under the existing agreements. But, resolution of political situation is taking longer than expected timeframe.