ONGC facing payment hurdles in its Russian asset

22 May 2024 , 09:31 AM

Banking constraints have prevented Oil and Natural Gas Corp (ONGC) from paying its portion of the Sakhalin-1 field abandonment fund in Russia. This has impeded the company’s efforts to reclaim a 20% stake in the oilfield.

Its dividend from another Russian field (Vankor) cannot be repatriated. According to ONGC’s earnings statement, the business received dividends from Vankor for the first half of 2023, and as of right now, rouble 16.08 billion, or around ₹1,451 Crore, is deposited in Commercial Indo Bank in Moscow. “As such, the amount is available for use by the group only in the country and currency of receipt,” stated the statement.

The state company’s subsidiary, ONGC Videsh, purchased a 20% stake in the Sakhalin-1 project in 2001. The field’s operator, ENL, a subsidiary of Exxon Mobil, announced a state of emergency in April 2022, and production there almost came to an end in September. The Russian government gave Sakhalin-1 LLC, a new company, full rights and responsibilities in the field in October 2022. Additionally, it gave ONGC a 20% stake in the new company, contingent on the Indian company transferring its payment to the project’s current abandonment fund.

In order to prevent further harm to the environment, the project is completed and wells are securely sealed off using the abandonment fund.

“Due to restrictions on Russian banks, ONGC Videsh is in discussion with government of Russian Federation and Sakhalin1 LLC for identifying likely alternatives to transfer the abandonment fund for fulfilling the condition precedent,” stated ONGC. “As on 31st March 2024, an amount of $630.64 million (₹5,257 Crore), which is the amount after deduction of TDS on interest earned, is held by the ONGC Videsh on behalf of Sakhalin-1 LLC, in a special purpose bank account opened with permission from the Reserve Bank of India.”

As per the company’s statement, “Limited information regarding field operations, production summary, wells summary, drilling, and crude transportation operations has been received from the project till 31 March 2024,” ONGC Videsh has not received the financial statements for Sakhalin-1 for the fiscal year 2023–2024.

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