Audit Reports
Commercial
Report No. 28 of 2010-11 – Performance Audit of ONGC Videsh Limited Joint Venture Operation
Overview
ONGC Videsh Limited (Company) is a wholly owned overseas arm of Oil and Natural Gas Corporation Limited. It is engaged in oil and gas exploration and production (E&P) projects, with the objective of ensuring energy security for the country. Up to March 2010, the Company had acquired a total of 45 E&P assets with an investment of Rs.52,491.90 crore in 16 countries worldwide. The Company has consistently earned increasing profits during five of the last six years. In 2009-10 its profit declined sharply to Rs.4004 crore.
Performance audit of 20 of the Company's 45 E & P assets for the period April 2004 to March 2010 identified two areas of its working that require strengthening, viz., the Company's systems for evaluation of investment opportunities for acquiring E&P assets and for formation of joint ventures as also its internal control systems.
Investment in exploratory assets involves low cost but high risk. Out of 36 assets that the Company acquired at the exploration stage at an investment of Rs.6,206.83 crore, only five have been successful. Eight of these assets with an investment of Rs.1,066.17 crore had to be abandoned (in three of these abandoned assets, the company was the sole owner and operator) and the remaining 23 projects were still in the process of exploration. The Company is yet to succeed as an operator. The Company's major investment of Rs.46,285 crore (88 per cent) was in nine assets that were acquired at producing/discovered stage. As exploration & production is a high risk and capital intensive business, it is essential to mitigate the investment risk by exercising due diligence vis-a-vis investment opportunities and formation of joint ventures. It is desirable to have a documented and structured policy for evaluation as also for formation of JVs detailing the extent of acquisition of participation interest in offered E&P assets and farming-in and farming-out of participation interest. The Company, however, did not have such a policy which would have provided a framework for decision making and brought about greater consistency,assurance and transparency in the system.