 "OVL-OIL to buy Videocon's stake in Mozambique field")
The acquisition will be done through a new joint venture of OVL, the overseas arm of state-owned Oil and Natural Gas Corp (ONGC), and Oil India, a statement issued by ONGC said on Tuesday. OVL will hold a 60 per cent stake in the joint venture, while Oil India will hold the rest.
“OVL and Oil India have signed a definitive agreement with Videocon Mauritius Energy Ltd to acquire 100 per cent of (its) shares in Videocon Mozambique Rovuma 1 Ltd for $2.47 billion,” the statement said.
The Videocon group said it would use the proceeds of the deal to retire its debts and take “a leap in our endevour to emerge as a major player” in the global oil and gas industry. “We will continue to focus aggressively on our existing oil assets globally especially in Brazil, which have a proven potential of over 2 billion barrels of oil as of today,” said Venugopal Dhoot, chairman of Videocon group (see interview). In Brazil alone, the oil fields are estimated to be worth Rs 40,000 crore.
This is a win-win deal for both OVL-Oil India and for Videocon as the former has bought the stake at a good valuation, taking the recent transactions into consideration, while for Videocon, the exit from the field will help it fund and nurture its other oil and gas blocks (see chart).
The deal is subject to approvals of the governments of Mozambique and India, relevant regulatory approvals, pre-emption rights and other customary conditions. The transaction is expected to close in the fourth quarter of 2013, the statement said.
“Area 1 has the potential to become one of the world's largest LNG (liquefied natural gas) producing hubs by 2018,” the ONGC statement said. The partners in Area 1 include Anadarko Petroluem Corp, operator of the project, Emprecia Nacional de Hidrocarbonetos (ENH), Mitsui, Bharat Petrolweum Corp Ltd and PTTEP.
The Area 1 LNG project is strategically located to supply LNG to India at a competitive price. Participation of OVL and Oil India in the project will facilitate access of LNG to the growing Indian gas market. OVL and oil India will also need to devote significant funding and technical resources to the development of the project, which will also enhance the strong business links between Mozambique and India.
“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”, said Sudhir Vasudeva, chairman of OVL.
The acquisition would mark OVL’s entry into this emerging offshore gas basin with a significant future upside potential, and is consistent with OVL's strategic objective of adding high quality international assets to its existing exploration and production portfolio. The acquisition will increase OVL’s reserve and resource base resulting a step further towards India’s energy security. The project would also be an important milestone in reaching OVL's long-term production targets of 20 million tonne of oil equivalent ( mtoe) by FY18 and 60 mtoe by FY30.
Last year, OVL had agreed to pay $5 billion to acquire ConocoPhillips’s 8.4 per cent stake in a Kazakhstan oilfield. But the company is facing uncertainty over concluding the deal in Kazakhstan, as the Kazakh government is using its right of first refusal power to get Chinese companies in place of OVL.
The Kashagan field, located in the shallow waters of the Kazakh North Caspian Sea, is the world’s largest development project. The acquisition of the stake is likely to be completed by the first half of 2013. Production will start from mid-2013.
OVL, with its 8.4 per cent stake, will get 315,000 tonnes of oil in the first year. The share will go up to 4.2 mt per annum in 2028 when all three phases of the field have been fully developed. This will help OVL offset the drop in production from its assets in Syria and Sudan, which had brought its total output down by seven per cent in 2011-12.
At present, OVL produces hydrocarbons from its nine assets — Russia (Sakhalin-I and Imperial), Syria (Al-Furat Project), Vietnam (Block 06.1), Colombia (Mansarover energy project), Sudan (Greater Nile oil project and Block 5A), Venezuela (San Cristobal project) and Brazil (BC-10). As of 2011, OVL’s overseas cumulative investment crossed $ 10 billion.
While Videocon’s scrip fell 5.7 per cent on Tuesday on the BSE to close at Rs 201.05 against the benchmark Sensex’s 0.48 per cent gain to 18,629.15 points, the ONGC stock closed 3.8 per cent higher at Rs 310.20. The share of Oil India shed 2.1 per cent to Rs 544.20.