Power, port assets to be included in Essar-Rosneft deal

Vadinar oil terminal and two power assets are likely to be part of Rosneft’s deal to buy 49% stake in Essar Oil

Essar Oil has 15 oil and gas blocks and fields in various stages of exploration and production. Photo: Reuters
Essar Oil has 15 oil and gas blocks and fields in various stages of exploration and production. Photo: Reuters

Mumbai: Two power assets and the Vadinar oil terminal owned by the Essar Group are also likely to be included in a deal the conglomerate is to close with OAS Rosneft, Russia’s largest energy company, according to two Essar Group officials.

The officials, who spoke on condition of anonymity, added that the deal is likely to be announced late September or early October. Essar Oil did not reply to an email sent on Wednesday evening.

Rosneft is set to buy a 49% stake in Essar Oil, concluding a deal that has been in the works since July 2015. Rosneft chairman Igor Sechin, during his visit to India in March 2016, had confirmed that an understanding on the structure of the deal has been reached. The parties had intended to close the deal by the end of June 2016, but it is still in the works.

On 15 July, Mint reported that Essar Oil is in talks with overseas oil trading companies such as Trafigura Group Pte, Glencore Plc and others to sell an additional 23.5% stake in the firm.

“The Vadinar power asset and the Vadinar oil terminal will also be included in the deal. Talks are on to include the exploration and production assets of Essar Oil as part of the deal,” said one of the Essar Group officials cited earlier.

On 25 May, Mint had reported that exploration and production assets will also be part of the deal.

Debasish Mishra, partner at Deloitte Touche Tohmatsu India Pvt. Ltd, said, “With low oil price regime, most of the international upstream companies have realized that they are heavily dependent on oil and need diversification of assets across the value chain. Thus, inclusion of assets like port and power in the deal makes sense.”

According to Essar Oil’s website, the company has 15 oil and gas blocks and fields in various stages of exploration and production (E&P).

The blocks are located across India, Indonesia, Madagascar, Nigeria and Vietnam. The total reserves and resources across these blocks is 2,109 million barrels of oil equivalent.

The assets also include the company’s coal-bed methane (CBM) blocks. Gas resources across its five CBM blocks are to the tune of 10 trillion cubic feet.

In addition to some of the E&P assets being included in the deal, Essar Oil may also rebrand its fuel-retailing outlets and co-brand them with Rosneft.

Essar Oil has 1,500 fuel outlets and is in the process of setting up another 1,400. It eventually plans to take this number up to 5,000, making it the largest private fuel retailer in India.

The deal is important for the debt-laden Essar Group, which has been trying to monetize assets across its steel, power and refinery businesses. The group has a debt of $18 billion.

Once the Rosneft deal is officially closed, Essar Oil’s 20 million tonnes per annum (mtpa) refinery at Vadinar in Gujarat is likely to start receiving crude oil from Rosneft.

Last July, Essar Oil signed an agreement with Rosneft for the supply of 10 mtpa of crude to the Vadinar refinery in Gujarat for 10 years. In July 2015, Essar Oil had said that the long-term crude oil supply agreement with Rosneft would help Essar diversify its supply sources, expand its geographical market coverage and enhance supply security.

Through this deal, Rosneft will gain access to Vadinar—the second-largest oil refinery in India, with a capacity of 20 mtpa.