ONGC gets US nod to expand Venezuela operations, recover unpaid dividends

Oil and Natural Gas Corp. Ltd (ONGC) has secured a US sanctions license allowing its overseas arm to resume wider operations in Venezuela, opening a path to recover more than $500 million in unpaid dividends and seek control of two oil projects.

The license, granted by the US Treasury Department’s Office of Foreign Assets Control, or OFAC, according to ONGC finance director Anupam Agarwal, removes sanctions-related risks that had forced ONGC Videsh to limit financial and operational activity at its Venezuelan ventures.

“Now we have full freedom to work on the Venezuela project,” Agarwal said during ONGC’s earnings call on Wednesday, 5 August. “Earlier, we were restricting our operations there because of the sanctions-related risk.”

ONGC Videsh, the state-run explorer’s overseas arm, had applied to OFAC for permission to operate its Venezuelan projects. The company had previously held back spending and other activity because transactions involving Venezuela’s state oil company, Petróleos de Venezuela, or PDVSA, could run afoul of US sanctions.

The approval allows ONGC to move ahead, but there is still plenty to settle. It needs new agreements with the Venezuelan government and its project partners. It must also agree on funding, payments and control of field operations.

ONGC is already talking to Venezuelan authorities and its partners, Agarwal said. Caracas recently revised its petroleum law and is offering additional financial incentives to companies willing to invest in oil production.

“We believe very soon we will see some positive developments, the new agreements signed, and we are taking over the operatorship for some of those projects from PDVSA,” he said on the earnings call.

Operatorship matters because ONGC is now a minority investor in projects largely run by PDVSA. Taking over would give it a bigger say in drilling, procurement, field development and production schedules. It would also leave ONGC with more of the work, and the cost, of reviving fields that have gone short of investment for years.

ONGC Videsh has interests in two Venezuelan projects. It owns 40% of the San Cristóbal field, with PDVSA entities holding the rest. The field lies in the Orinoco oil belt and produces heavy crude.

The company also owns 11% of Carabobo-1. Repsol holds another 11%, while Indian Oil Corp. Ltd and Oil India Ltd own 3.5% each. PDVSA holds 71%, according to ONGC Videsh. The three Indian companies together own 18%.

ONGC has been trying to win US clearance for several years. Its managing director said in August 2024 that the company had sought a license similar to the one then available to Chevron. Without it, ONGC could not freely use US dollars, banks or service companies for the projects.

The company said at the time that a license could also help it collect more than $500 million in unpaid dividends. That money will not arrive simply because OFAC has issued an approval. ONGC and PDVSA still need to find payment routes that banks will accept. Any recovery will also depend on the finances of the projects and the terms agreed with Caracas.

The size of the opportunity is clear enough. Venezuela has about 303 billion barrels of proved crude reserves, the largest in the world. Much of it is heavy or extra-heavy oil that is harder and more expensive to produce, transport and refine.

Production has suffered after years of weak investment, equipment shortages, the departure of skilled workers and US sanctions.

San Cristóbal has been through a revival plan before. In 2016, ONGC Videsh and PDVSA signed agreements covering unpaid dividends and financing for water injection and new wells. ONGC said it received $88.4 million of overdue dividends and provided a $17.1 million loan for the work.

The plan was supposed to raise output from about 18,000 barrels a day to 27,000 barrels a day, according to the company’s 2016 statement. Production later weakened again as Venezuela’s economic crisis worsened and sanctions tightened.

In 2024, ONGC Videsh said its two Venezuelan projects were producing between 12,000 and 15,000 barrels a day. It believed that could be raised to about 30,000 barrels a day within a year and to 50,000 over the next few years, provided it received US approval and could put money back into the fields.

ONGC thinks its work in Gujarat gives it a head start. Agarwal compared the shallow onshore fields in Venezuela with the company’s operations around Mehsana and Ahmedabad. ONGC has long experience with ageing reservoirs, water injection and other methods used to lift production from mature fields.

The sanctions picture has changed since ONGC first applied. OFAC has issued several general licences this year covering parts of Venezuela’s oil trade. One allows named companies, including BP, Chevron, Eni, Repsol and Shell, to conduct a wider range of transactions involving Venezuelan oil. The latest version also includes French producer Maurel & Prom.

The Indian company required its own clearance because its projects, banking arrangements and proposed role were different. OFAC has not published the terms of ONGC’s license.

The timing matters for India. Restricted traffic through the Strait of Hormuz since the US-Israeli war with Iran began has pushed refiners to look farther afield. Indian imports from Russia and Latin America rose during the April to June quarter, while supplies from the Middle East fell by about 27%, trade data showed.

Venezuela is a long haul from India, but it offers another source of crude when the usual routes are under strain. That does not mean oil produced by ONGC in Venezuela would necessarily be shipped to an Indian refinery. Equity crude can be sold elsewhere, exchanged for another grade or handled under the project’s existing commercial arrangements.

Venezuelan heavy crude also needs a refinery equipped to process high-sulfur barrels. Reliance Industries Ltd has that capability at its Jamnagar complex and has bought Venezuelan oil before. In April, a Reliance unit loaded a two-million-barrel cargo bought directly from PDVSA under a US-approved arrangement, according to Reuters.