OVL gets government nod to invest an additional $70 million in Brazilian oilfield

The cabinet committee on economic affairs (CCEA) today authorised ONGC Videsh Limited (OVL) to make an additional investment of $70 million in the BC-10 oil block in Brazil, taking the total investment in the project so far to $383 million (excluding acquisition cost of $165 million).

OVL said the funding of the Brazil project would be done from its own resources without any recourse to government support or guarantee. CCEA also authorised the empowered committee of secretaries (ECS) to approve an additional $17.5 million (ie, 25 per cent of $70 million) in case of escalation in capital expenditure or shortfall in cash sink in respect of the project.

Phase-I of the project is currently estimated to cost at the earlier level of $1.20 billion. However, the cost is likely to increase by $314 million as a result of various factors such as freshly imposed taxes, duties, additional well costs and other contingencies etc, according to Shell, which is the operator of the block.

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 $4.99 billion for both phase-I & II. OVL's share at 15 per cent in the total costs works out to $748.05 million. OVL's cash sink is expected to be $383 million against earlier estimated cash sink of $313 million.

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 BC-10 oil and gas block is located in the Campos basin, about 120 km southwest of Vitoria City off the coast of Brazil. Water depths in BC-10 range from 1,400 meters on the west side of the block to 2,100 meters on the east side.

Shell, as the operator for the BC-10 block, has a 35 per cent interest in the project. Other partners of the consortium are Petrobras with 35 per cent interest and ExxonMobil (through Esso Exploracao Campos Limitada) with a 30 per cent interest.

CCEA had, in December 2005, approved investment of $410 million (including $165 million in acquisition cost and $245 million project cost) for a 15 per cent participating interest by OVL. The operator (Shell) has further revised the project capital expenditure upon further detailing and finalization of major contracts to $4.49 billion as project execution cost. The cash sink for OVL's share till the commencement of production has also been revised from $410 million to $478 million.