OVL-Sistema stake swap unlikely

OVL-Sistema stake swap unlikely

New Delhi: India’s ambitious plan to acquire a 25% stake in the entity formed after the proposed merger of Russian conglomerate JSFC Sistema’s units JSC Bashneft and OAO RussNeft with UK-based explorer Imperial Energy may come unstuck, said a top executive at ONGC Videsh Ltd (OVL), the overseas arm of state-owned oil and gas explorer Oil and Natural Gas Corp. Ltd.

OVL was to acquire the stake under an agreement, “Framework Agreement on Cooperation in Hydrocarbon Sector", which it had signed with Sistema during a December 2010 visit to India by Russian President Dmitry Medvedev.

“The process has been slow and the discussions are progressing very slowly. There is also a possibility that this may not happen," the executive added.

In return for acquiring 25% of the merged entity, OVLhad planned to divest its entire stake in its most expensive acquisition—Imperial Energy, for which it paid $2.1 billion.

The companies had targeted 30 June 2011 to finalize the transaction, according to a statement issued by ONGC at that time.

While Sistema directly and indirectly holds around 90% of Bashneft, it has a 49% stake in RussNeft.

In response to an email regarding the agreement not going forward, a Sistema spokesperson said: “There is no deal between Sistema and ONGC, as well as there is no merger of Bashneft and RussNeft—Sistema owns just 49% of RussNeft."

The arrangement with Sistema would have helped OVL exit the Imperial asset, provided India crucial access to additional hydrocarbon reserves and enhanced the strategic advantage of Indian oil firms overseas.

“ONGC proposes to lead a consortium of Indian oil sector PSUs (public sector undertakings) to consider acquiring the stake offered by Sistema under the agreement," ONGC had said in the December 2010 statement.

Watch video

Mint’s Utpal Bhaskar says OVL is unlikely to get its 25% stake from the proposed merger of two units of JSFC Sistema with UK firm Imperial Energy.

Loading video

Mint had reported on 17 June 2010 that Imperial was expected to see a peak output of 45,000 barrels per day (bpd) of oil in its Siberian fields, almost half the 80,000 bpd estimate that was the basis for the valuation and approval of the purchase.

Government officials and industry analysts had then described Imperial as “a difficult proposition".

Bashneft and RussNeft produce 13 million tonnes per annum (mtpa) and 12 mtpaof oil, respectively. Bashneft has a refining capacity of 20 mtpa, and RussNeft, 7 mtpa.

“Not much progress has been made" (on the proposed merger), said the head of a PSU, who did not want to be identified. This PSU had plans to be a part of the proposed consortium led by ONGC.

To be sure, the ONGC statement also said “no binding commitments of any kind or nature will arise between ONGC and Sistema until the parties’ execution of binding legal documentation and receipt of any necessary corporate and governmental approvals".

India’s investments in the energy sector in Russia include a 20% stake in the Sakhalin-I hydrocarbon block through OVL.

Indian investments in Russia, mainly in the hydrocarbon sector, total $4.25 billion.

India believes that, unlike in Africa, it has a strategic advantage in Russia over China, its main rival for overseas oil and gas assets, because of its historical ties with the country.

India’s demand for liquid petroleum products and gas would grow by 4.7% and 14%, respectively, over the next five years, according to the petroleum ministry.

Russia produces 9.93 million barrels per day of oil and 546.8 billion cu. m of gas. It has proven oil and gas reserves of 79 billion barrels and 47.57 trillion cu. m, respectively.

India, which is heavily dependent on oil imports, has been scouting for new energy assets to meet growing demand.

India currently imports more than 80% of its energy requirements and the consumption of energy in India is likely to double by 2030 to the equivalent of 833 million tonnes of oil, according to a forecast by the International Energy Agency.