ONGC signs deal to acquire additional 11% stake in Russia’s Vankorneft

Deal may be in line with original valuation of $924 mn; once completed, ONGC Videsh Vankorneft will have a 26% stake in JSC Vankorneft


Photo: Bloomberg
Photo: Bloomberg

New Delhi: State-run Oil and Natural Gas Corp. Ltd (ONGC) has signed definitive agreements with Russia’s national oil company Rosneft PJSC to acquire an additional 11% stake in its unit, JSC Vankorneft, which has a licence to produce hydrocarbons from the Vankor field in Siberia.

ONGC did not disclose the price at which the additional stake is being acquired, but a person with knowledge of the transaction said on condition of anonymity that the purchase would cost around $924 million, in line with the original valuation.

Once the transaction is completed, ONGC Videsh Vankorneft Pte Ltd, a unit of the oil explorer, will hold a 26% stake in Vankorneft, including the 15% stake it had acquired earlier for $1.26 billion. That deal was concluded in May this year.

The latest deal, first announced on 16 March, is expected to receive approvals from the boards of the companies as well as the Indian and Russian governments by the end of 2016, ONGC said.

The definitive agreement was signed in Moscow on Wednesday by Narendra K. Verma, chief executive officer and managing director of ONGC’s overseas arm ONGV Videsh Ltd, and Igor Sechin, chairman of Rosneft’s board of directors.

“Vankor is Rosneft’s (and Russia’s) second largest field by production and accounts for 4% of Russia’s production. The daily production from the field is around 421,000 barrels per day (bpd) of crude oil on an average and together with the earlier acquisition of 15%, ONGC Videsh’s share of daily oil production from Vankor will be about 110,000 bpd,” ONGC said in a statement.

The acquisition of the extra 11% stake has significant strategic importance and would add about 30% to ONGC Videsh’s existing production at the current rate and about 2.2 million tonnes of oil and 1 billion cu. m of gas annually, the statement said.

A consortium of Indian Oil Corp. Ltd, Oil India Ltd and a unit of Bharat Petroleum Corp. Ltd on 16 March signed a similar agreement with Rosneft to buy a 23.9% stake in the Vankor oilfield for about $2 billion.

Eventually, the Indian holding in Vankorneft will go up to 49.9% once all the three deals are completed.

The acquisition will enable ONGC to expand its presence in Russia and to add international assets to its existing exploration and production portfolio.

The deal is also important in terms of India’s energy security.

“Acquiring hydrocarbon assets abroad can fetch equity oil (share of production or equivalent in monetary terms), which can help in reducing the country’s current account deficit and act as a hedge against oil shocks,” said Kaustav Mukherjee, senior partner and managing director of consulting firm BCG India. “However, import dependence on oil and gas can be reduced only by increased domestic production.”

ONGC shares edged down 0.16% to Rs247.85 on BSE on a day the benchmark Sensex gained 0.14% to 28,412.89 points.

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