State-owned Oil and Natural Gas Corporation (ONGC) has secured a US sanctions licence that will allow its overseas arm to expand operations in Venezuela, potentially increase crude production and pursue operatorship of oil projects currently run with Venezuelan state oil company PDVSA.
The clearance from the US Treasury Department's Office of Foreign Assets Control (OFAC) removes a significant sanctions-related obstacle that had restricted ONGC Videsh Ltd's activities in the South American country for years.
ONGC Finance Director Anupam Agarwal said during the company's recent earnings call that the licence gives the company greater freedom to work on its Venezuelan projects. Earlier, ONGC had deliberately limited financial and operational activity because dealings involving PDVSA risked falling foul of US sanctions.
The clearance is expected to allow ONGC Videsh to undertake fresh investments, enter into agreements and participate more actively in the management and development of its Venezuelan assets.
The company is also looking at assuming operatorship of projects, a move that would give the Indian explorer greater control over production and investment decisions rather than remaining primarily a participating stakeholder.
ONGC Videsh has a 40 per cent participating interest in the San Cristobal oil field, located in Venezuela's Orinoco Heavy Oil Belt. The stake was acquired in 2008 through a joint venture with PDVSA.
The Indian company also has exposure to the Carabobo-1 project. The Venezuelan investments had been constrained by sanctions and difficulties in conducting transactions involving the country's state-controlled petroleum industry.
With the restrictions easing, ONGC is looking to substantially increase production. Reports indicate that the company sees scope to lift output from roughly 12,000-15,000 barrels per day to around 30,000 barrels per day.
Another major issue is the recovery of dividends accumulated from ONGC's Venezuelan investments. More than $500 million in payments have remained outstanding, with sanctions and payment restrictions complicating efforts to repatriate the money. The new licence could create a route for recovering those dues.
The development is significant for India's broader energy strategy as New Delhi seeks to diversify its sources of crude amid persistent geopolitical uncertainty and supply risks.
Venezuela possesses some of the world's largest proven oil reserves, and greater operational freedom there could strengthen ONGC Videsh's overseas portfolio while providing India another potential source of crude.
For ONGC, the OFAC clearance therefore represents more than the revival of previously constrained investments. If the company succeeds in increasing production, recovering accumulated dividends and securing operatorship, its long-standing Venezuelan exposure could move from a sanctions-constrained investment to a more strategically important overseas asset.