New Delhi: Even as oil prices continue to fall to three-year lows, Oil and Natural Gas Corp. Ltd(ONGC) said oil will rebound to $100 a barrel, twice the current level, justifying a proposed £1.4 billion (Rs10,416 crore) bid for UK’s Imperial Energy Corp. Plc.by India’s biggest energy explorer.
“I hold the very strong view that crude prices will be at the three-digit level, two digits will be history,” ONGC chairman R.S. Sharmasaid. “We have to take a long-term view, not a short-term view.”
Crude oil fell below $50 a barrel on Thursday in New York for the first time in almost two years as a recession in the US, Europe and Japan cuts global demand growth to its weakest level in 23 years.
Crude oil for January delivery rose as much as $1.23, or 2.5% on Friday to $50.65 a barrel on the New York Mercantile Exchange.
Imperial Energy shares have fallen 16% below ONGC’s offer price on investor concern that the bid may fail or be lowered.
“It’s possible they may adjust their bid,” said Victor Shum, a Singapore-based senior principal at energy consultant Purvin and Gertz Inc. “This downward spiral in oil pricing will make many companies relook their investments, existing contracts to do projects and deals.”
ONGC needs to make its formal bid by 9 December or walk away from its biggest overseas purchase ever. Sharma, 57, said the bid “is in process,” declining to comment any further on the purchase plan.
Imperial Energy fell 1.4% to 1,055 pence in London trading on Thursday. ONGC’s offer price is 1,250 pence a share.
“If they are counting on $100 oil, he’s not going to get a lot of support to buy at that level,” Shum of Purvin and Gertz said. He was referring to Sharma’s oil forecast and ONGC’s bid for Imperial Energy.
ONGC had cash reserves of Rs23,000 crore as of 30 September, according to finance director D.K. Sarraf.
That can be used to pursue India’s quest for energy security, said Mahesh Patil, who helps manage the equivalent of about $10 billion at Birla Sunlife Asset Management in Mumbai.
“We agree with the view that in the medium to longer term, oil prices will move up again,” Patil said over the phone. “Also, they are sitting on cash which can help them in growing overseas which they seem to need, considering ONGC hasn’t been able to grow its domestic reserves.”
Sharma said any decision the state-owned company took would have to stand up to scrutiny.
“We are not taking a pessimistic view,” Sharma said. “In India, accountability is huge, so we don’t compromise on commercial viability.”
The explorer, which produces almost 25% of the crude oil used by Asia’s third largest energy consumer, is trying to secure energy assets overseas as production from aging fields at home declines.
The ONGC board is scheduled to meet on 1 December to consider investment plans of as much as $10 billion on drilling for oil and gas and on building chemical plants, Sharma said.
ONGC created a joint venture with Venezuela’s state oil company in April to produce oil in the San Cristobal field. The venture will pump at least 232 million barrels of crude in Venezuela over 25 years.
Imperial Energy explores in Siberia and had the equivalent of 920 million barrels of proven and probable oil reserves as of December 2007, according to an audit by DeGolyer and MacNaughton cited on the UK company’s website. The company has registered 526 million barrels of oil equivalent with Russian authorities and will continue to add to that number, according to a July company statement.
ONGC Videsh Ltd, the unit of ONGC that is bidding for Imperial Energy, received approvals from the Russian government to go ahead with the acquisition this month. Shareholders of Imperial Energy will have 60 days to respond to the offer.
The agreement to buy Imperial Energy is the first to get approval from the Federal Anti-monopoly Service, or FAS, since Russia passed laws this year potentially limiting foreign access to its natural resources.
The Indian explorer paid $1.7 billion to buy a stake in Exxon Mobil Corp.’s Sakhalin-I field in Russia and $785 million for a stake in the Greater Nile project in Sudan. ONGC owns 20% of Sakhalin-I, which began pumping oil in 2005 and produced 250,000 barrels a day in February 2007.
Archana Chaudhary in Mumbai and Christian Schmollinger in Singapore contributed to this story.