Mumbai: ONGC Videsh Ltd (OVL), which recently bid to acquire Imperial Energy Corp. Plc and which was set up to acquire oil and gas blocks in various parts of the world to help India’s energy security cause, is in talks to acquire Canada’s Tanganyika Oil Co. Ltd for $1.2-1.5 billion (Rs5,340-6,675 crore), according to people familiar with the development.
The state-owned firm, a wholly owned subsidiary of Oil and Natural Gas Corp. Ltd (ONGC), has asked audit and consulting firm Ernst and Young’s (E&Y) Indian arm to advise it on the acquisition, but is yet to give E&Y a so-called formal mandate, one of these persons said, asking not to be named.
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The discussions are at an advanced stage, said a banker close to the deal, who did not want to be named.
Mint couldn’t immediately ascertain the stage at which the talks are, or indeed whether they are on. R.S. Sharma, chairman of ONGC, declined comment. R.S. Butola, managing director and chief executive of OVL, did not respond to phone messages sent to him.
An email sent to Tanganyika, whose blocks are in Syria, remained unanswered. It reported a profit of $28.9 million and a cash flow of $38.1 million for its second quarter ended June.
Chinese and Indian companies have been aggressively buying oil fields in Africa, West Asia and Russia to meet their energy needs. Both countries depend on imported crude to fuel their rapidly expanding economies.
On 26 August, OVL agreed to buy UK’s Imperial Energy, an upstream oil exploration and production company, for £1.4 billion (Rs11,074 crore today) to tap its Siberian deposits. Its parent ONGC has 38 oil and gas projects in 18 countries and produces oil in Sudan, Russia, Vietnam, Syria and Columbia.
ONGC, the country’s largest public sector firm, plans to spend Rs45,333 crore by 2012 on oil and gas exploration.
“It makes lot of sense for OVL to make an acquisition overseas,” said an analyst with a domestic brokerage, who tracks oil stocks.
The analyst, who didn’t want to be named as he’s not authorized to speak to the media, said overseas acquisitions will enable ONGC to establish relationships with other nations for buying oil assets.
“This will ensure energy security on the domestic front as 70% of the country’s oil needs are met by imports, which in turn shrinks our foreign exchange reserves,” he added.
ONGC, named Asia’s largest oil and gas exploration firm among 250 energy companies last year by energy information provider Platts, plans to buy the 38.8% stake owned by Tanganyika’s main shareholders, including the Lundin family and Iceland’s Straumur Burdaras Investment Bank.
The Lundin family, with roots in Vancouver, Canada, is known for venturing into areas such as the Democratic Republic of Congo and Sudan, and acquiring large mineral and oil assets at discounted prices to sell them later at a premium, according to Fortune magazine.
Straumur Burdaras had acquired a 10.6% stake in Tanganyika in 2006, but pared its stake to 7.6% in the past two years, according to the company’s website.
Tanganyika’s three oil blocks in Syria, at Oudeh, Tishrine and Sheikh Mansour, were acquired from the Syrian government in 2003 and 2004 for 20 years, with a provision to extend the deal for five years.
Tanganyika’s oil output grew by at least 24% in the second quarter, averaging 16,670 barrels of oil per day (bpd), the company’s president and chief executive Gary S. Guidry said in a message to shareholders after the results.
The average price realized on crude oil from the Oudeh and Tishrine blocks were up 90% from the same year-ago period.
A Swedish newspaper, Dagens Industri, on 21 May had reported that OVL is in acquisition talks with a Swedish-Canadian oil firm, without naming the company.
“Even though development is at an early stage...a bidder should be able to realize a 12.5% return on a (per share) purchase price of 175 Swedish krona (Rs1,190). We expect the company to be drilling around 25 wells per month by late 2009,” wrote Julian Beer, an analyst with SEB Enskilda Research, a division of Skandinaviska Enskilda Banken AB.
The report was released on 15 August, stating that Tanganyika was “ready to be sold”. Beer said the ideal partner to Tanganyika would be China National Petroleum Corp., which has signed a joint venture agreement with Syrian Petroleum Co. to build refinery that can refine 100,000 bpd.
Beer estimated that gross production from Tanganyika’s three fields in Syria would be at 18,000 bpd for 2008, 34,000 bpd for 2009 and 58,000 bpd for 2010.
The analyst forecast that the company’s revenue would surge to $209 million in fiscal 2008 and $405 million the next year, from $35 million in 2007. Net profit was projected to increase to $97 million in fiscal 2008 and $177 million in 2009, from $23 million in 2007.
The report also said Tanganyika’s capital expenditure would be limited to $173 million in 2008 and $290 million in 2009 for exploration in 92 wells due to late delivery of rigs in the first half of the year. The company, however, had estimated a capital expenditure of $270 million in 2008 for exploration in 131 wells.
Utpal Bhaskar contributed to this story.