Due to sanctions against Russia, ONGC Videsh Ltd, the state-owned Oil and Natural Gas Corporation’s (ONGC) overseas investment arm, is experiencing temporary interruptions in transporting its share of oil from the Sakhalin-1 project in the Far East Russia, according to its Managing Director Alok Gupta.
OVL owns a 20% share in Sakhalin-1, which is operated by ExxonMobil’s Russian subsidiary, Exxon Neftegaz. Following Russia’s invasion of Ukraine, Exxon declared its withdrawal from the project apparently began removing expatriates.
According to Russian Energy Ministry data, Sakhalin-1 produced over 271,000 barrels of oil per day in January and February 2022, compared to an average of 227,000 bpd BPD year. Exports have decreased as a result of sanctions against Russia, which have made shipping more difficult.
Between May 1 and 15, production fell to slightly over 60,000 barrels per day, according to the Moscow-based news source Interfax.
“There are temporary difficulties due to the Sakhalin-1 force majeure,” Gupta stated on an investor call following ONGC’s FY22 earnings. “Over the next two to three weeks, this scenario will stabilise as we figure out alternate methods.”
He didn’t go into detail about the alternatives being considered.
After experiencing difficulties chartering ice-resistant ships to transfer oil from the De-Kastri marine export terminal on Sakhalin Island in Russia’s Khabarovsk area, the ExxonMobil-led Sakhalin-1 consortium declared force majeure on its scheduled oil export shipments to Asia.
These tankers are operated by Sovcomflot, a Russian state-owned shipping company that is subject to US and European sanctions.
Insurance coverage is difficult to come by for shipowners. According to Gupta, the sea between Khabarovsk and Sakhalin normally clears of ice by June, therefore ice-class vessels and ice-breaking help are required before then.
According to the call’s transcript, he described Exxon’s decision to leave Russia as a “grandstanding or, let’s say, high moral stance adopted not exactly in terms of energy restrictions that have been imposed, but (due to) high moral grounds.”
The difficulty to convey crude from the terminal to the transfer point in South Korea has resulted from the failure to give production and indemnity cover for the ice-class boats, he said. “This temporary disruption will last a few months, and as a result, Sakhalin production will be reduced.”
OVL, on the other hand, has never had any issues with money repatriation from Russia.
“Let me be very delighted to report with you that we received all of our money as was due until March this year,” he said of the dividends. “Vankorneft’s next payment in the form of dividends is expected in July. We’re working with our partners to figure out how that money will flow in July when it’s due.”
In the northeastern region of West Siberia, OVL owns a 26% share in the Suzunskoye, Tagulskoye, and Lodochnoye fields, collectively known as the Vankor cluster.
“Russian crude oil is being sold at a discount. We are unable to sell crude from Sakhalin because of the current circumstance of not being able to transfer the crude out,” he added, adding that OVL’s two Russian ventures, Vankorneft and Imperial Energy, were unaffected.
According to him, crude from Vankorneft and Imperial is moving through pipelines to neighbouring nations, and OVL is realizing its price.
“For the portions of the oil that are going to be exported, there are certain discounts going on.”
OVL, as an acquisition firm, seeks for assets all around the world, according to Gupta. “Right now, we’re looking at three to four large geographies where we have significant and tremendous opportunities accessible to us.”
Featured Image: ONGC Videsh
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