ONGC Videsh Ltd (OVL), the overseas arm of state-owned oil and gas explorer and producer Oil and Natural Gas Corp. Ltd (ONGC) on Tuesday signed an agreement with private Russian conglomerate Sistema JSFC that may involve the acquisition of around 25% stake in the latter’s subsidiary JSC Bashneft and OAO RussNeft. In return, OVL may divest its entire stake in its most expensive acquisition —Imperial Energy Corp. Plc—for which it had paid $2.1 billion (Rs 9,513 crore).
“ONGC proposes to lead a consortium of Indian oil sector PSUs (public sector undertakings) to consider acquiring the stake offered by Sistema under the agreement,” ONGC said in a statement. The agreement was signed between OVL’s managing director R.S. Butola and Sistema chairman Vladimir Yevtushenkov during the visit of Russian president Dmitry Medvedev to India.
Strengthening foothold: OVL managing director R.S. Butola (extreme right) exchanges documents with Sistema chairman Vladimir Yevtushenkov after signing an agreement in presence of Russian President Dmitry Medvedev (extreme left) in New Delhi. AP
While Sistema directly and indirectly holds around 90% in Bashneft, it has a 49% stake in RussNeft. The companies are targeting 30 June to finalize the transaction terms. OVL may also get a stake in the Trebs and Titov oil fields in the Arctic that Bashneft recently acquired. Nord Imperial, a subsidiary of Imperial Energy, is among the companies that had applied to bid for Trebs and Titov but were not selected.
A senior OVL executive said the companies were considering several options.
“We are looking at a swap transaction with cash adjustment for residuals. We are trying to keep the cash payment to a minimal. Sistema might get more stake in our Imperial assets as compared with what we may get in theirs on account of the production profile of our assets. I will not rule out a 100% swap of Imperial assets given their size of assets,” said this person who did not want to be identified because the transaction is at a preliminary stage.
While Bashneft and RussNeft produce 13 million tonnes per annum (mtpa) and 12 mtpa of oil respectively, Imperial’s production is around 1 mtpa. While Bashneft also has a refining capacity of 20 mtpa, RussNeft has a 7 mtpa capacity.
Mint had reported on 17 June that Imperial is expected to see a peak output of 45,000 barrels per day (bpd) of oil in its Siberian fields, almost half the 80,000 bpd estimate that was the basis for the valuation and approval of the purchase. Government officials and industry analysts had, at the time, described Imperial as “a difficult proposition”.
India’s petroleum secretary S. Sundareshan had said, at a later interview, that it was too early to reach a conclusion on what the field’s peak production would be. “We are convinced that in the long run the project is extremely worthwhile and will be viable,” he had added.
India is relying on its historical association with Russia for energy resources and has signed a comprehensive umbrella agreement for the energy sector. India’s energy investments in Russia also include a 20% stake in the Sakhalin-1 hydrocarbon block through OVL. Indian investments in Russia, mainly in the hydrocarbon sector, total $4.25 billion.
“Sistema had been scouting for a strategic partner having experience in the oil and gas sector. They have offered us some partnership in their assets and we in turn may offer partnership in our assets to them. We had signed a memorandum of understanding on 9 December on the same,” said R.S. Sharma, chairman and managing director, ONGC.
The agreement signed between OVL and Sistema on Tuesday also includes potential transactions in “any other oil and gas assets which the aforesaid companies may acquire before definitive agreements are signed. The parties further agree to consider joint investments in each other’s existing and future exploratory assets in certain third countries.” India is the world’s fifth-largest oil importer, meeting 80% of its needs from overseas. It will become the third largest after the US and China before 2025, according to the International Energy Agency.