India's state-owned Oil and Natural Gas Corporation is negotiating to take over the operation of two oil projects in Venezuela within the next three to six months, a move that could give it control over production and sales at fields where it is owed more than 500 million dollars in unpaid dividends.
The company's overseas arm, ONGC Videsh, is in advanced discussions with the Venezuelan and United States authorities over the proposed arrangement, the company's finance chief, Anupam Agarwal, told analysts on Friday on a call following its quarterly financial results. The company expects the agreements to be finalised within three to six months.
ONGC currently holds investments in the San Cristobal and Carabobo 1 projects in Venezuela, but it does not operate them. Under the proposed arrangement, the Indian company, which has so far been only an investor in the projects, would operate the fields and market their output, while the long-pending dividend payments would be settled.
At San Cristobal, ONGC holds a 40 per cent stake, with Venezuela's state oil company, Petroleos de Venezuela SA, known as PDVSA, owning the remaining 60 per cent. ONGC expects to become the sole operator of the project under the new arrangement. At Carabobo 1, the arrangement would be shared with other investors.
ONGC and other Indian companies hold a combined 18 per cent stake in the project, while Spain's Repsol has an 11 per cent stake, and ONGC expects to take joint operatorship there.
The pending dividend of more than 500 million dollars from the two projects will be adjusted after the new operatorship agreements are finalised, Agarwal said. The details of the settlement have yet to be worked out, and discussions are under way on whether the payment would be made in cash or in the form of oil supplies. The proposed agreements could also allow ONGC to acquire interests in additional Venezuelan fields, Agarwal said.
The development comes after a significant easing of the sanctions-related constraints on ONGC's Venezuela operations. In July, the United States Treasury's Office of Foreign Assets Control granted a general licence to ONGC Videsh for the resumption of its operations in Venezuela, removing the restrictions that had limited the company's ability to work on its Venezuelan assets.
The licence has given ONGC greater flexibility to pursue fresh investment, new agreements and possible operatorship of oil blocks currently run by PDVSA.
ONGC had been unable to receive the income from its Venezuelan projects for several years because of the American sanctions on Venezuela. The company has around 500 million dollars of dividends stuck in the country, and PDVSA had earlier agreed to supply oil to ONGC Videsh instead of paying the dividends in cash.
In 2024, ONGC Videsh had sought a specific licence from the United States Treasury to operate in Venezuela, and the general licence granted in July this year has now cleared the way for a fuller engagement.
The focus of ONGC's plans in Venezuela is on shallow, onshore fields, where the company has relevant operating experience from its domestic fields in western India, including Mehsana and Ahmedabad.
The company has said it plans to raise production in Venezuela from the current level of 12,000 to 15,000 barrels per day to 30,000 barrels per day within a year, a target that would require fresh investment and a revival of drilling activity in fields that have suffered from years of underinvestment.
Venezuela's oil industry has been in decline for years, hit by a combination of American sanctions, mismanagement and a lack of investment. The country, which sits on some of the largest proven oil reserves in the world, has seen its production fall sharply from its peak, and only two drilling rigs were active in the country as of August, according to data from Baker Hughes cited by industry analysts.
The Venezuelan government has been seeking foreign partners to help rebuild the sector, and the entry of an experienced operator such as ONGC could help in that effort.
For India, the Venezuela engagement carries both commercial and strategic significance. India is one of the world's largest importers of crude oil, and Venezuelan crude, which is heavy and sour, is suited to the configuration of several Indian refineries. Securing a direct role in the production and marketing of Venezuelan oil would give ONGC a new source of supply at a time when India is seeking to diversify its crude imports.
The recovery of the stuck dividends would also bring a substantial sum back onto the company's books.
The negotiations, however, are taking place against a complicated political and legal backdrop. Venezuela remains under American sanctions, and any arrangement involving the country's oil sector requires careful coordination with the United States authorities. The fact that ONGC Videsh is in advanced talks with both the Venezuelan government and the American authorities suggests that the framework for the new operatorship is being worked out with the sanctions regime in mind.
The history of ONGC's involvement in Venezuela goes back many years. The company entered the San Cristobal and Carabobo projects as part of India's effort to secure equity oil overseas, a strategy under which Indian public sector companies acquired stakes in oilfields abroad to ensure long-term energy security. The Venezuelan investments were among the largest such bets, and the freezing of the dividends under the sanctions regime has been a long-running sore for the company.
The proposed operatorship would mark a significant change in the character of ONGC's presence in Venezuela, turning it from a passive investor waiting for dividends into an active operator responsible for production, marketing and the handling of revenues. That shift would also place ONGC in the position of managing the day-to-day challenges of operating in Venezuela, including the state of the fields, the availability of equipment and the local operating environment.
For the moment, the company has said only that the talks are advanced and that agreements are expected within three to six months. The final shape of the arrangement, including the terms on which the dividends will be settled and the extent of ONGC's control over the two projects, will become clear once the agreements are signed.
The outcome will be watched closely in New Delhi and in Caracas, as it could set a precedent for how other foreign investors engage with Venezuela's oil sector as the country seeks to rebuild its production.
(Reporting based on OilPrice.com and Moneycontrol.)