OVL in talks with Russia’s Rosneft for new assets

OVL in talks with Russia’s Rosneft for new assets

New Delhi: ONGC Videsh Ltd (OVL), the overseas arm of state-run Oil and Natural Gas Corp. Ltd, is in talks to partner Russia’s largest crude oil producer OAO Rosneft in tapping a hydrocarbon field and setting up a refinery in that country.

If the deal is clinched, it would provide India crucial access to additional hydrocarbon reserves and enhance the strategic advantage of Indian oil companies overseas.

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The talks centre on partnerships in exploring the Yurubcheno-Tokhomskoye hydrocarbon field and the 20-million-tonne (mt) Primorsk refinery and petrochemical complex to be set up in the far east of Russia.

India, relying on its historical association with Russia to tap energy resources, signed a comprehensive agreement on cooperation in the energy sector during Russian President Dmitry Medvedev’s visit to India last month.

“Russia is the most impor tant strategic partner for India as compared to other countries," said Anil Razdan, a former special secretary in the petroleum ministry. “Given China’s presence on the asset acquisition scene, whatever we can do at a fair price and for good technology with Russia should be done. They have helped us in the past in the Soviet era and even after that have kept their word."

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According to documents reviewed by Mint, the Yurubcheno-Tokhomskoye field has estimated reserves of 500 mt for which Rosneft holds an exploration and production licence.

The refinery complex is one of the core projects of Rosneft and is being planned to market products in the Asia-Pacific region.

The Russian government holds a 75.16% stake in Rosneft, which has total proven hydrocarbon reserves of 22.9 billion barrels of oil and oil equivalent. It has a presence in eastern and western Siberia, southern and central Russia, the Timan-Pechora region and the Far East.

“Rosneft has discussed the proposal with us. This is a field in which we are interested," said a senior OVL executive who did not want to be identified.

Questions emailed to Rosneft on Friday remained unanswered at the time of filing this story.

India believes that, unlike in Africa, it has a strategic advantage in Russia over China, its main rival for overseas oil and gas assets. The Russian government’s strategy is to have a presence across the hydrocarbon chain and not just be restricted to an exporter of crude oil and gas; it also wants to be an exporter of products.

“We are interested in the Primorsk project and have asked them for the market study," the OVL executive quoted above said.

These opportunities will require multi-billion dollar investment and OVL may form a consortium to tap them. Indian state-owned firms such as OVL, Oil India Ltd (OIL) and Indian Oil Corp. Ltd (IOC) have evolved a consortium approach to buy overseas assets to share risk and technical know-how.

Top IOC and OIL officials, who also requested anonymity, said no formal proposal had yet been made to them.

With Russian firms acquiring licences for the best hydrocarbon blocks, no Indian firm can secure assets there without the active support of the Russian and Indian governments.

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.

Indian investments in Russia, mainly in the hydrocarbon sector, total $4.25 billion (around Rs19,000 crore). They include a 20% stake in the Sakhalin-1 hydrocarbon block through OVL and the 2008 buyout of the UK’s Imperial Energy Corp. Plc, which has operations in Russia.

In December, OVL had signed an agreement with Russian conglomerate Sistema JSFC that may involve the merger of Sistema’s JSC Bashneft and OAO RussNeft with Imperial Energy, with OVL getting a 25% stake in the merged entity. OVL may also get a stake in the Trebs and Titov oil fields in the Arctic.

India, which is heavily dependent on oil imports, has been scouting for new energy assets to meet growing demand. The country consumes 144 mt of oil a year, with domestic production accounting for only 34 mt.

Graphic by Ahmed Raza Khan/Mint