Economic Times reported that ONGC will invest a staggering 27,800 crore or USD 5 billion for an 8.4% stake in an oilfield in Kazakhstan to give a big boost to India's energy security by partnering global majors in developing the world's biggest oil discovery since 1968.
The state run firm's overseas arm, ONGC Videsh Ltd announced its biggest ever deal on November 26th that is also one of the largest outbound investments by an Indian company after the TATA-Corus, Bharti-Zain and Hindalco-Novelis deals. The government is encouraging the company to acquire foreign petroleum assets to fuel an expanding economy that imports 80% of the oil it processes.
Analysts said that the deal was valued at the high end of the anticipated valuation of USD 4 billion to USD 5 billion, but ONGC officials said that there are huge upsides in the investment. The field will start production in the H1 of 2013 and its development has been delayed by 8 years, during which its cost has doubled to USD 46 billion.
The company in a statement said that ONGC is buying ConocoPhillips' entire stake in the shallow water Kashagan field where Total, Shell, ExxonMobil and KazMunaiGaz hold 16.81% each while Inpex holds 7.56%.
In the first phase of the field's development, the Indian company will get 1 million tonnes a year for 25 years, with a peak of 1.6 million tonnes of the field's total output of 18.5 million tonnes a year. In the next 2 phases of development, ONGC's share would be significantly higher.
The company is involved in exploration activities in 15 countries from Vietnam to Venezuela including stakes in producing fields such as Sakhalin in Russia and the Greater Nile Project in Sudan, where output has fallen. It also bought Imperial Energy for USD 2.1 billion about four years ago, but output from Imperial's assets has fallen sharply.
Mr Sudhir Vasudeva chairman of ONGC said that the latest transaction was a major step towards achieving the goal of raising overseas output from the current annual production of 8.75 million metric tonnes of oil equivalent to 20 million metric tonnes of oil equivalent by 2018 and 60 million metric tonnes of oil equivalent by 2030.
Mr Vasudeva said that "The acquisition also bears a significant strategic importance to India in terms of contributing towards India's energy security. It is one of the biggest oil fields in the world with upside potential."
Analysts said that the deal was positive for ConocoPhillips. The purchase price of USD 5 billion is at the high end of our prior expectation of USD 4 billion to USD 5 billion. This is a positive for ConocoPhillips as it marks important progress on their asset divestiture program, which is needed to support the capital program and dividend."
Mr RS Sharma former chairman of ONGC said that the company has taken the correct step for India's energy security. We must keep looking for such opportunities. I don't have knowledge of the valuation. I'm sure that the company must have done that. Our entry in the Kashagan area is an important thing."