Auditor raps India's ONGC over 'inflated' claims

India's auditor has rapped state-run ONGC over its $2.12 billion purchase of Imperial Energy, saying unrealistic output forecasts were made to justify the energy giant's costliest ever acquisition. The harshly-worded condemnation comes only months before Oil and Natural Gas Corp (ONGC) is slated to hold a share sale targeted to raise around $2.7 billion for government coffers.
The government auditor said Russia-focused Imperial, whose main assets are in the Tomskh region of east Russia, has produced lower than projected output and its oil reserves had been inflated. London-listed Imperial has been able to achieve production of only 15,803 barrels of oil per day (bpd) as against the envisaged production levels of 35,000 bpd (at the time of acquisition), the Comptroller and Auditor General said in its report tabled in parliament late Friday,
The shortfall had caused a loss of 11.8 billion rupees or $265 million on top of several billions dollars in losses stemming from unproductive exploration of assets. ONGC still has "to succeed as an (energy) operator", the report said. ONGC Videsh Ltd, the overseas arm of ONGC, acquired Russia-focused Imperial Energy in January 2009 for $2.12 billion, making it the company's most expensive acquisition ever.
ONGC had to reduce the proven reserve size of the asset during 2009-10 by 1.53 million tons "indicating the inflated size of reserves estimated by the company at the time of its acquisition", the auditor general said. "The fact the company even now is not in a position to generate a realistic production profile and bring out an economic analysis confirms all the problems associated with these fields were not properly assessed," the report said.
Investors are already nervous about India's raft of financial scandals and analysts say the damning report could jeopardise the government's plans to sell off a five percent stake in ONGC sometime mid-year. The report criticising ONGC comes after the auditor last year stirred a massive controversy by saying the government's cut-rate sale of mobile licences had cost the public treasury up to $40 billion.