Cabinet clears stake acquisition in Rosneft assets by Indian firms

A consortium of state-run oil firms—IOC, OIL, and a unit of BPCL—will buy stakes in two assets in Siberia owned by Russia’s state-backed Rosneft


India has been scouting for valuable overseas assets but some of the investments in the past had gone wrong. Photo: Bloomberg
India has been scouting for valuable overseas assets but some of the investments in the past had gone wrong. Photo: Bloomberg

New Delhi: India is building its defences against possible oil shocks in the future by acquiring promising hydrocarbon assets abroad, especially in countries with which New Delhi shares good diplomatic relations.

The cabinet committee on economic affairs chaired by Prime Minister Narendra Modi on Wednesday approved a plan by a consortium of state-run oil companies—Indian Oil Corp. Ltd, Oil India Ltd and a unit of Bharat Petroleum Corp. Ltd—to buy stakes in two assets in Siberia owned by Russia’s state-backed PJSC Rosneft Oil Co. for $3.3 billion.

Although an agreement to buy the assets was announced by the companies on 16 March when Rosneft’s president and chairman Igor Ivanovich Sechin visited India, this is the first time the deal valuation has been made public.

The Indian consortium will buy 29.9% stake in LLC Taas-Yuryakh for $1.24 billion and 23.9% in JSC Vankorneft for $2.02 billion, said a statement from the oil ministry. The assets will give the Indian consortium access to 7 million tonne of oil equivalent (mmtoe) initially and 8 mmtoe in three years from now.

Simultaneously, public sector Oil and Natural Gas Corp. (ONGC) is raising its stake in JSC Vankorneft from 15% to 26%. The transaction is expected to be completed by the end of this year and will give Indian companies a combined 49.9% stake in the Rosneft unit.

India has been scouting for valuable overseas assets but some of the investments in the past had gone wrong. ONGC had to withdraw from two projects in Syria due to geopolitical tensions while its investments in Imperial Energy Plc in Russia yielded lower than projected output.

New Delhi is exploring new opportunities as the subdued oil price in world markets—around $46 a barrel at present—is forcing oil-rich nations to sell some of their assets to cut down revenue deficits.

Experts do not see a major rebound in oil prices in the near future. While it is difficult to forecast oil prices over the long term, chances of a sharp recovery in prices are slim over the next 18 months, said Jean Le Corre, senior partner and managing director of Boston Consulting Group.

Another overseas asset Indian companies including ONGC are expected to access shortly is the Farzan-2 field in Iran, which Tehran has identified for development and production by Indian firms. It was Indian companies that discovered hydrocarbon in this block during the pre-sanctions era. “A decision on Indian companies getting this field for development on nomination basis is expected by the end of October,” said a member of the ONGC board.

Brazil’s state-run Petróleo Brasileiro SA (Petrobras) last week announced a 25% cut in its capital spending and a disinvestment goal of $19.5 billion between 2017 and 2018. Indian state-run companies have looked at Petrobras’s assets on the block but no final decision has been taken yet for making a bid, the same official cited above said.

Out of ONGC’s crude oil output of about 31.5 million tonne, 17.5% comes from overseas fields, with Russia being the largest source. Oil fields in Vietnam, Venezuela, Azerbaijan, Colombia, Brazil and Sudan also contribute to ONGC’s production.

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