OVL plans $2bn bid for 15% in Yukos unit

Deal will be largest overseas acquisition by Indian firm.

ONGC Videsh has sought government permission to acquire a 15 per cent stake in Yuganskneftegas, the main production unit of Yukos, in Russia. The Indian company is willing to shell out up to $2 billion for the asset.

If the deal goes through, it will be the biggest acquisition by an Indian company. ONGC Videsh bought a 20 per cent stake in the offshore Sakhalin-1 exploration project led by Exxon-Mobil for $1.7 billion in 2001.

Yuganskneftegas was recently acquired by state-owned Rosneft for $9.4 billion. ONGC Videsh earlier wanted to tie up with Gazprom, another Russian government-owned entity, which dropped out of the race at the last minute.

ONGC Videsh, the overseas exploration arm of Oil and Natural Gas Corporation, is looking to expand its international presence. Apart from Sakhalin 1 in Russia and a project in Sudan, it has shown interest in Project Diamond in Ecuador.

Government officials told Business Standard that the petroleum ministry deliberated upon the matter on Tuesday but found that ONGC Videsh had not yet done proper due diligence on the proposed bid.

"There are a large number of legal problems that we anticipate and these issues have not been factored in," an official said.

Besides, there are conflicting signals emerging from Russia itself and therefore officials feel that ONGC Videsh should not rush into any deal. The ONGC subsidiary has been asked to factor in all possibilities and submit a detailed proposal.

ONGC Videsh has made a case for speeding up government clearances as some Chinese oil majors have also shown interest in Yuganskneftegas. Russia's Energy Minister Viktor Khristenko had said recently that 20 per cent of Yuganskneftegas could be offered to China National Petroleum Company.

Yuganskneftegas, which pumps 1 million barrels per day of crude oil, or 60 per cent of Yukos' output, was sold to Rosneft to help recover taxes owed by Yukos. Rosneft is expected to be merged with Gazprom.

A petroleum ministry official said Indian companies were better suited to handle Russian establishments because the two countries have had technological tie-ups.

"Besides, an Indian company is not likely to aggravate legal problems in case there are disputes in the future," said the official.