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Home >Industry >Energy >OVL, OIL to acquire Videocon’s 10% stake in Mozambique block

New Delhi: State-run ONGC Videsh Ltd (OVL) and Oil India Ltd (OIL) will buy Videocon Mauritius Energy Ltd’s 10% stake in Mozambique’s Rovuma 1 offshore block for $2.47 billion.

“The acquisition is expected to be implemented via a newly incorporated entity, in which OVL and OIL are expected to hold 60% stake and 40% stake, respectively," Oil and Natural Gas Corp. Ltd, parent of OVL, said in a statement on Tuesday. “The transaction is expected to close in the fourth quarter of 2013."

The Rovuma Area 1 deepwater block is said to be the largest gas discovery off Africa’s east coast with estimated recoverable reserves of 35 to 65 trillion cu. ft (tcf).

US-based Anadarko Petroleum Corp. is the operator in the project. Other partners include India’s state-run Bharat Petroleum Corp. Ltd (BPCL), Empresa Nacional de Hidrocarbonetos (ENH) of Mozambique, Mitsui and Co. Ltd of Japan and PTT Exploration and Production Public Co. Ltd (PTTEP) of Thailand.

“Area 1 has the potential to become one of the world’s largest LNG (liquified natural gas) producing hubs with first LNG expected by 2018. The Area 1 LNG project is strategically located to supply LNG to India at a competitive price. Participation of OVL and OIL in the project will facilitate access of LNG to the growing Indian gas market," ONGC said.

The block area covers 2.6 million acres. With the acquisition, the Indian state-owned firms will have a 20% stake in the block, making them the second largest stake holders. While Anadarko has a 36.5% stake in the block, BPCL, ENH, Mitsui and PTTEP have a stake of 10%, 15%, 20% and 8.5%, respectively.

“The deal has been in the works for a while. If you take a look at the nature of any asset, there is a some amount of risk. If you look at the benchmarks for what has been paid for other assets, this is a favourable price," said a person associated with the deal requesting anonymity.

India, dependent on imports to meet its energy needs, is particularly vulnerable to supply shocks.

The world’s fourth-largest energy-consuming nation imports 80% of its crude oil and 25% of its natural gas requirements. It trails the US, China and Russia, accounting for 4.4% of global energy consumption.

“Considering the growing importance of natural gas in the primary energy basket, this acquisition is a significant step by OVL/ONGC group towards the energy security of our country," ONGC chairman and managing director Sudhir Vasudeva said in the statement.

Bank of America Merrill Lynch was financial adviser to OVL, while Simmons and Simmons was legal adviser, Ernst and Young was tax and accounting adviser and Robertson (UK) Ltd was technical adviser.

India’s energy requirements are expected to more than double by 2035 to around 1,500 million tonnes of oil equivalent (Mtoe) from less than 700 Mtoe today, according to official estimates. Indian state-owned firms have invested 64,832.35 crore towards overseas energy security efforts.

“In our view, the acquisition value at US$ 2.5bn appears fair. PTTEP last year acquired Cove Energy for a consideration of US$ 1.9bn," Religare Institutional Research said in a 25 June report. “The acquisition included 8.5% stake in Rovuma Area-1, besides other marginal assets. However, it is worth noting that in August’12, when PTTEP completed its acquisition of Cove Energy, only two major discoveries were made in Rovuma Area-1, viz. the Prosperidade complex (17-30tcf) and Golfinho/Atum complex (15–35tcf)."

This announcement comes in the backdrop of OVL struggling with the Russian assets of UK’s Imperial Energy Corp. Plc, which it acquired in 2009. ONGC paid $2.1 billion in 2009 to tap Imperial Energy’s Siberian deposits.

It also follows a premature announcement by ONGC on 10 June to this effect, which the company later retracted.

“Mozambique is a region with the future. We should expand our footprint there. The way the region is placed, geographically we are not too far away. However, at what price the gas is available is left to be seen," said Anil Razdan, a former special secretary in the petroleum ministry.

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