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Indian OVL to Buy ConocoPhillips’s Stake in Kashagan Field

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NEW DEHLI (Hindustan Times) – In its biggest acquisition ever, Indian state-owned Oil & Natural Gas Corp (NSE: ONGC, BSE: 500312) on Monday agreed to buy US energy giant ConocoPhillips’ 8.4% stake in the Kashagan oilfield in Kazakhstan for about US $5 bln.

Oil and Natural Gas Corporation Limited (ONGC)
is one of the largest Asia-based oil and gas exploration and production companies, and produces 77% of India’s crude oil and 81% of its natural gas. It is has been ranked 357th in the Fortune Global 500 list of the world’s biggest corporations for the year 2012.

ONGC Videsh Ltd, the overseas arm of the state explorer, will pay a base price of US $4.25 bln plus a share of working capital and other cash calls together with interest for the 8.4% stake in the field that will produce 370,000 barrels per day (18.5 mln tons a year) of crude oil. This will be the biggest acquisition by OVL, surpassing its $2.2 bln buyout of Russia-focused Imperial Energy in January 2009. It will also be the biggest acquisition by an Indian company this year, and the sixth largest in the history.

OVL is seeking oil and gas properties overseas to meet the nation’s rising energy needs. India last year spent $140 bln on import of crude oil.

The stake buy in Kashagan field is subject to approval of governments of Kazakhstan and India and also to other partners in the Caspian Sea field waiving their pre-emption rights. Italy’s Eni, Royal Dutch Shell, France’s Total, ExxonMobil and KazMunayGas have 16.81% stake each, while Inpex of Japan has the remaining 7.56%. Industry sources said ExxonMobil and Shell are seeking bigger stakes in the Kashagan oil field and operating control before starting to expand the project. OVL concluding the deal would depend on the two firms waiving their right of first refusal (ROFR) or pre-emption rights.

COP expects proceeds of $5 bln, including the purchase price and expected working capital and closing adjustments, according to a statement from the Houston-based company. It plans to sell off $8 bln to $10 bln in assets in 2012 and 2013, part of a multiyear plan to streamline the business. COP already has divested $2.1 bln so far this year. In 2010, the company announced a three-year plan to raise $15 bln to $20 bln by selling off assets deemed nonstrategic to its core businesses. Senior analyst Philip Weiss of Argus Research said the Kashagan deal made sense for ConocoPhillips’ shrink-to-grow strategy, given the project’s slow progress.

Kashagan, the biggest world oilfield discovery since 1968, holds an estimated 30 bln barrels of oil-in-place, of which 8-12 bln are potentially recoverable. Plans have already been firmed to ramp up output to 450,000 bpd (22.5 mln tons per annum).

ConocoPhillips (COP) and OVL in separate but almost identical statements said the deal is expected to close in the first half of next year.

“The acquisition would mark OVL’s entry into the largest oil proven North Caspian Sea of Kazakhstan. From Phase 1, the acquisition is likely to add an average annual production of about 1 mln tons for a period of over 25 years with a peak of about 1.6 mln tons,” OVL statement said. When Phase 2 and 3 are implemented, the OVL’s share will be significantly higher.

ONGC Videsh has interest in projects in more than 12 countries, including a 25% interest in the Satpayev block in Kazakhstan. ONGC is negotiating with oil and gas companies worldwide to rebuild its reserves because production is falling from its mature fields. In its annual report, ONGC outlined plans to invest $200 bln by 2030 to help double its production. The current acquisition will be OVL’s second acquisition this year. It had a couple of months back bought stake in a group of oil fields in Azerbaijan for about $1 bln. Deals announced this year include Hinduja Group firm Gulf Oil Corp’s acquisition of US-based speciality chemicals maker Houghton International Inc for $1.045 bln.

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