ONGC's $2.4-bn Mozambique deal under scanner; may have overpaid $200 mn

Oil and Natural Gas Corp's (ONGC's) $2.475 billion purchase of Videocon Group's 10 per cent stake in a giant Mozambique gas field has come under the Oil Ministry's scanner following allegations that the public sector unit (PSU) might have overpaid about $200 million, charges that the company vehemently denied.

ONGC Videsh Ltd (OVL), the overseas arm of state-owned ONGC, had in June 2013 bought a 10 per cent stake in Offshore Area 1 from the Videocon Group for $2.475 billion. This stake was later divided between OVL and Oil India Ltd (OIL) in a 60:40 ratio.

The deal has now come under the Oil Ministry's scanner following allegations that OVL might have overpaid Videocon.

Government officials said the ministry has, over the past few months, asked the company to provide several details regarding the deal, including the basis of the valuation.

The inquest by the ministry was acknowledged by senior company officials, who said details have been provided on multiple occasions.

Sources said that Videocon was in 2012 willing to sell its stake to OVL at a small premium to the price Thailand's PTT Exploration and Production paid for acquiring an 8.5 per cent stake in the same block from Cove Energy for 1.22 billion British pounds ($1.9 billion at exchange rate prevalent at that time).

The 10 per cent stake, they said, was available to OVL for about $2.3 billion or so but the company a year later paid $2.475 billion to Videocon.

An e-mail sent to ONGC Chairman Dinesh K Sarraf, who was managing director of OVL at the time of the deal, for comments received a response from the company stating: "There is no basis to this allegation and ONGC Videsh strongly refutes it."

OVL had followed up the Videocon purchase by buying another 10 per cent stake in the same Offshore Area 1 of Mozambique from US energy major Anadarko Corp for $2.64 billion in 2014.

A year later, Anadarko in its annual filings with the US Securities and Exchange Commission said it made a "gain" of $1.5 billion, or over 62 per cent of the purchase price, from the sale of its 10 per cent interest in Offshore Area 1.

Texas-based energy exploration company Anadarko continues to be the operator of the block, with its stake reduced to 26.5 per cent, from 36.5 per cent, after the deal.

Presently, OVL has a 16 per cent stake in Offshore Area 1, which holds as much as 75 trillion cubic feet of gas reserves.

OIL has four per cent and a unit of Bharat Petroleum Corp Ltd another 10 per cent stake.

Other partners in Area 1 include Mitsui, with 20 per cent stake; ENH, with 15 per cent; PTTEP, with 8.5 per cent.

Gas from the block is to be converted into liquefied natural gas for transportation by ships to markets like India.