New Delhi: The overseas unit of Oil and Natural Gas Corp. Ltd (ONGC) will buy ConocoPhillips Co.’s 8.4% stake in Kazakhstan’s Kashagan oil field for about $5 billion (Rs.27,500 crore).
ONGC Videsh Ltd (OVL) is expected to close the deal for the US-based oil producer’s interest in the North Caspian Sea production sharing agreement in the first half of 2013, ONGC said in a statement on Monday.
The Kazakh government and project partners have the right of first refusal on the sale, according to the statement. The partners in the project include Exxon Mobil Corp., Eni SpA, Total SA, Shell and KazMunaiGaz, each of which have a 16.81% participating interest, and Inpex Corp. with 7.56% stake.
Although ONGC didn’t specify the value of the transaction, Bloomberg reported that the Indian explorer would pay $5 billion for the stake in the world’s largest hydrocarbon development project, valued at around $187 billion.
ONGC is trying to secure overseas assets as India’s energy demand gallops. India’s energy requirements are expected to more than double by 2035 to around 1,500 million tonnes of oil equivalent (mtoe) from less than 700 mtoe today, according to India’s oil ministry estimates.
“The intangible benefit will be the learning and knowledge sharing with the global energy majors on a giant field development in a challenging regime,” said Gokul Chaudhri, a partner at BMR Advisors, a consultancy.
“Clearly, with assets in Sakhalin, Africa and now in central Asia, OVL will have material footprint. Co-investment in proven assets is certainly more efficient than financial the takeover of mid-size exploration companies.”
While the acquisition may provide a boost to India’s efforts towards energy security, it comes in the backdrop of OVL struggling with the UK’s Imperial Energy Corp. Plc, which it acquired in 2009. ONGC paid $2.1 billion in 2009 to tap Imperial Energy’s Siberian deposits.
While peak oil output from the Siberian fields was estimated at 80,000 barrels per day (bpd) by 2011 at the time of the purchase, it was lowered to 45,000 bpd, Mint reported on 17 June 2010. The field is producing only around 15,000 bpd.
Also, OVL’s producing properties in South Sudan have been shut and the ones in Sakhalin and Syria are in decline.
Finance minister P. Chidambaram last month asked national oil companies to ensure their returns justify investments and make commercially sound investments. State-run firms such as OVL, Oil India Ltd, GAIL (India) Ltd, Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd have invested around $13 billion on acquiring energy assets overseas.
Production from overseas energy assets contributes around 10.5% to India’s production of 90 million tonnes of oil and gas.
A bid by an Indian group comprising ONGC, Indian Oil and Oil India is also among the three short-listed for ConocoPhillips’ Canadian oil sand assets valued at around $5 billion.
Countries such as India that are dependent on imports to meet their oil needs are particularly vulnerable to supply shocks. India, the world’s fourth largest energy-consuming nation, imports 80% of its crude oil and 25% of its natural gas requirements. It trails the US, China and Russia, accounting for 4.4% of global energy consumption.
Bloomberg contributed to this story.