Ukraine crisis: ONGC assesses oil-for-dividend swap for Russian assets

As Russia faces a barrage of sanctions from the United States and its Western allies for invading Ukraine, the biggest casualty has been crude oil.

State oil and gas producer ONGC could weigh swap options – such as crude oil against dividends to be received from its hydrocarbon blocks in Russia – apart from other transactions if the Ukraine crisis persists for a period. longer, according to company sources. However, the sustainability of these oil and gas blocks is a bigger concern as major foreign explorers, many of whom are partners of ONGC, exit the assets, the sources said.

As Russia faces a barrage of sanctions from the United States and its Western allies for invading Ukraine, the biggest casualty has been crude oil. Brent crude oil prices crossed the $100 per barrel mark on Feb. 27 and are now hovering around $128 per barrel.

Higher prices are an advantage for ONGC. The immediate concern, however, is that since Russian banks are blocked from the SWIFT facility, the company could face issues regarding the repatriation of dividends. Dividends are repatriated twice a year and the next dividend is due after four months. Sources said that if the war persists and sanctions continue for the next four months, the company may consider an option to swap oil for dividends.

In FY21, ONGC received Rs 1,593 crore in dividends from its subsidiary ONGC Videsh (OVL) for its JSC Vankorneft asset, compared to Rs 396 crore in FY20.

“There is no problem if the dividends are brought back later. However, the biggest concern is the sustainability of these blocks, the impact on the supply chain and if there would be a sanction on the supply of oil and gas from Russia if the situation escalates from here,” the sources said.

ONGC’s arm for overseas operations, OVL, has a 20% stake in the Sakhalin-I oil and gas block, which was operated by ExxonMobil. ExxonMobil announced its exit from the project last week. However, there is no pending dividend from Sakhalin and the company is getting oil to sell, which it can sell on the market. The OVL share of Sakhalin-1, which covers an area of ​​1,140 square kilometers, is 45,400 barrels per day (2.27 million tons).

The explorer holds another 26% stake in the Vankorneft field, from which he obtains a dividend. The company also owns Imperial Energy, however, operations here are limited. The field produces approximately 11 million tonnes (mt) of oil per year. A consortium made up of Oil India, Indian Oil Corporation and a unit of Bharat Petroleum Corp (BPCL) holds another 23.9% stake in the project. Together, Indian companies have spent about $4.2 billion in this area. The operator of this project is the Russian company Rosneft.

ONGC also owns Imperial Energy Corporation Plc, an independent upstream oil exploration and production company with its main operations in the Tomsk region of Western Siberia, Russia. Field operations are restricted.

The company hopes that if the war persists, “the field season for seismic surveys which begins in October-November in India will see the participation of many global companies with their offices in India, including Russians, in the planned seismic program for the next season on the pitch. This would certainly solve the issues that are emerging due to the current engagement between Russia and Ukraine,” another company source said.

OVL spent $1.7 billion for its 20% stake in Sakhalin-1 in 2001 and bought Imperial Energy in 2009 for $2.1 billion. Russia continues to be India’s largest oil and gas investment destination.

Following Russia’s invasion of Ukraine, major oil and gas groups ExxonMobil, BP and Shell and Norway’s Equinor announced their intention to exit Russian oil and gas blocks.