Background

The Cabinet Committee on Economic Affairs in its meeting held in June, 2008 had considered and approved the investment by OVL in exploratory block NCMA 2 as recommended by ECS. Pertrotrin, National Oil Company of Trinidad & Tobago had to be carried for up to 35% participating interest (PI) during the first exploration phase in NCMA 2 project. Thereafter, Pertotrin was supposed to pay for its PI. The remaining 65% PI was to be acquired by OMEL wherein OVL's share was to invest up to USD 155 Million with Internal Rate of Return (IRR) more' than 14%. The Production Sharing Contract (PSC) for the block NCMA 2 was signed in December, 2008. In the absence of any agreement between OMEL and Pertotrin in respect of Petrotrin's carry arrangement the PSC was kept in Escrow till January, 2009. The carry agreement was duly negotiated by OMEL with Pertrotrin but could not be finalized between them by January, 2009 primarily on account of differences of opinion on treatment of disallowed costs for recovery by Ministry of Energy and Energy Industries (MOEEI) audit. OVL had insisted that as per normal practice, the disallowed costs should be shared by Pertrotrin also as partner, but the issue could not be resolved.

Meanwhile, Mittal Investment Saral (MIS) expressed their intention to withdraw from the block in view of the global economic meltdown and the ability to finalize the carry agreement. This necessitated OVL to have a relook on the previous evaluation to assess whether OVL can take the entire available stake.

Investment proposal of OVL would have enabled the country to have access to equity oil abroad in case of discovery. Considering all aspects of the situation and the then depressed markets, OVL came to the conclusion that in the absence of MIS, it would not like to continue on 100% standalone basis with an estimated expenditure of USD 304 Million, In order to mitigate the financial exposure of the Joint Venture, OVL/OMEL also worked on the possibility of having another international E&P company as partner in the Block. Some companies (Centrica, RWE Dea Ag, Germany, BG, Repsol) had expressed interest but subsequently withdrew. In such a situation, OVL did not have other option but to agree to OMEL's exit from the project.

OMEL spent an amount of USD 2,068,540.93 on T&T project till 30th June 2009. As OVL has 51% stake in OMEL, its share of expenditure was about USD 1,054,955.87 at the time of withdrawal from the project.