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Business News/ Companies / People/  Kashagan partners have 2 months to pre-empt Conoco deal: ONGC
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Kashagan partners have 2 months to pre-empt Conoco deal: ONGC

ONGC Videsh chief says Kazakhstan has 6 months to approve the deal after expiry of 60-day period

A file photo of ONGC Videsh managing director D.K. Sarraf. (A file photo of ONGC Videsh managing director D.K. Sarraf.)Premium
A file photo of ONGC Videsh managing director D.K. Sarraf.
(A file photo of ONGC Videsh managing director D.K. Sarraf.)

New Delhi: ConocoPhillips’ partners in Kazakhstan’s Kashagan field have 60 days to exercise pre-emption rights to prevent India’s ONGC Videsh Ltd from buying an 8.4% stake in the project held by the US company, the Indian firm’s managing director said.

ConocoPhillips has said it aims to sell its stake in the Kashagan field, the world’s biggest oilfield discovery since 1968, for about $5 billion to ONGC Videsh, the overseas investment arm of Oil and Natural Gas Corp. Ltd (ONGC).

D.K. Sarraf told Reuters the Kazakhstan government has six months to approve the deal after the expiry of a 60-day period for the partners to express their right of first refusal.

“The deal has to be approved within 240 days," Sarraf said.

The Kashagan field is jointly controlled by state-run KazMunaiGas and six international companies—ConocoPhillips, Italy’s Eni SpA, Exxon Mobil Corp., Inpex Corp. of Japan, Royal Dutch Shell, and France’s Total SA.

Kashagan holds an estimated 30 billion barrels of oil-in-place, of which 8-12 billion are potentially recoverable. Start-up of the field has been delayed since 2005 due to cost overruns and disputes with authorities over taxes. First production is expected next year.

Analysts said Shell and Exxon were unlikely to want to exercise their right of first refusal because of the ongoing problems at the project. Inpex, Japan’s biggest energy explorer, which has a 7.56% stake in Kashagan, said it couldn’t comment on the move by ONGC or whether it was offered the stake by ConocoPhillips.

With ONGC’s domestic output flat for years, India now buys nearly 80% of its oil needs and is the world’s fourth-biggest oil importer. It is under pressure from the government to meet rising demand.

Spot sales are an option

“We can bring it (the oil) to India, and other options are also there. There is a CPC (Caspian Pipeline Consortium) pipeline and some pipelines are coming from Russia," Sarraf said. “We will look at all options, including selling it on spot markets."

ONGC has a 20% stake in Russia’s Sakhalin-1 project, operated by Exxon Mobil, and normally sells its equity oil through spot tenders.

The acquisition would likely add 1 million tonnes (20,000 barrels per day) to ONGC Vidhesh’s annual production over 25 years, with its share of output significantly higher in later stages of development.

“We have a target of 20 million tonnes of oil and gas production by 2017-18 and 60 million tonnes by 2029-30, and today our production is less than 9 million tonnes. This would help us bridge the gap to an extent and help in energy security," Sarraf said.

ConocoPhillips, which has been shedding overseas assets to cut debt and increase its investment in lower-cost domestic shale oil and gas, said on Monday the book value of assets related to its Kashagan interest was about $5.5 billion as of end-September, and it would take an after-tax impairment of about $400 million.

Sarraf said a deal may be funded through a mix of loans from ONGC and overseas borrowings. “We have yet to finalize the funding plan," he said.

ONGC Videsh, which holds a 25% share in the Satpayev block in Kazakhstan, owns stakes in assets in more than a dozen countries—including Myanmar, Vietnam, Sudan, South Sudan, Russia, Azerbaijan, Syria, Libya, Brazil, Colombia and Venezuela.

ONGC shares, valued at more than $38 billion, traded around 1% higher mid-Tuesday—moving up from a near-six-month low hit on Friday.

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Published: 27 Nov 2012, 11:37 AM IST
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