The Cabinet Committee on Economic Affairs has authorized ONGC Videsh Limited (OVL) to make an additional investment of $70 million taking the total cash sink to $383 million (excluding acquisition cost of $165 million) for the project BC-10, Brazil from its own resources without any funding or guarantee support from Government of India.
CCEA also authorized the Empowered Committee of Secretaries (ECS) for OVL’s projects to approve an additional cash sink of $17.5 million (i.e. 25% of $70 million) in case of advancement of capital expenditure or shortfall in cash sink in respect of Block BC-10 in Brazil.
The operator Royal Dutch Shell plc (Shell), has now informed OVL that as a result of various factors such as freshly imposed taxes, duties, additional well costs and other contingencies etc. the cost of Phase-I is likely to increase by $314 million to $2282 million. For the present, the phase II costs have been estimated at the same level of $1196 million. Taking the increased project costs into consideration and non-project cost of $189 million, the total cost of the project as on date is estimated to be about $4987 million for both phase-I & II. OVL’s share at 15% in the total costs works out to be $748.05 million. OVL’s cash sink is expected to be $383 million (excluding acquisition cost of $165 million) against earlier estimated cash sink of $313 million.
The additional investment will give opportunity to OVL to expedite monetization of earlier investments in BC-10 Project. The additional investment is expected to provide higher reserve accretion of hydrocarbon and more production from the project to OVL, thereby increasing the energy security of the country.
The Oil and Gas Block BC-10 is located in the Campos basin about 120 kilometers southwest of Vitoria City off the coast of Brazil. Water depths in BC-10 range from 1400 meters on the west side of the Block to 2100 meters on the east side. The BC-10 license was signed on the August 6, 1998 with Shell as the operator for license with a 35% interest. Other partners of the consortium were Petroleo Brasileiro S.A. (Petrobras) with 35% interest and Exxon Mobil Corporation [through Esso Exploracao Campos Limitada (Esso)] with a 30% interest. OVL had acquired 15% participating interest in Block BC-10 in Brazil on April 25, 2006 with the approval of CCEA in December, 2005.
Consequently, the approved investment stood at $410 million ($165 million as acquisition cost and $245 million as project cost) for 15% participating interest. The operator (Shell) further revised the project capital expenditure (Capex) upon further detailing and finalization of major contracts, at the time of final investment decision (FID) in October 2006 at $4484 million as project execution cost. The cash sink for OVL’s share till the commencement of production was revised from $410 million to $478 million i.e. additional investment of $68 million. The CCEA on July 24, 2008, authorized OVL for an additional investment of $68 million taking the total investment by OVL to $313 million (excluding acquisition cost of $165 million) instead of earlier approval of $245 million till commencement of production for 15% participating interest in project BC-10, Brazil with a condition that OVL’s Internal Rate of Return (IRR) shall not be less than 10%. OVL has incurred an expenditure of $289.9 million towards cash calls till June 2009 against approval of $313 million till commencement of production on July 12, 2009.