Offshore Asset

Indian companies’ attempts to acquire oil and gas producing assets around the world hasn’t been very successful, but things are looking up. State-owned ONGC Videsh (OVL) had been eyeing the Kashagan field in Kazakhstan for several months now, and in this November, finalised definitive agreements with Conoco-Phillips for buying its 8.4 per cent interest in the North Caspian Sea Production Sharing Agreement that includes Kashagan field for $5 billion.

Kashagan, in the Caspian Sea, is the biggest oil discovery after Alaska’s Prudhoe Bay in 1968, and is estimated to have 30 billion barrels of oil equivalent. OVL has entered the project at just the right time. Says D.K. Sarraf, CEO and managing director, OVL: “The time and cost over-runs on the project are behind us.

We expect production to start by the second quarter of 2013.”

The acquisition of the Kazakhstan field would add 20,000 barrels per day in production for the next 25 years; approximately 1 per cent of our daily oil consumption.

Earlier this year, OVL made a breakthrough in its discussions with ConocoPhillips. Goldman Sachs had been roped in as its sole financial adviser. Pramo Selvaratnam, executive director, investment banking, Goldman Sachs India, says this is a large and complex asset to evaluate. “A large amount of work was done in understanding the asset,” he says.

Goldman’s core execution team included bankers based out of India as well as closely involving the investment bank’s senior oil and gas bankers from Houston and London.

As the first phase of the project is up and running, OVL expects Kashagan to be a key asset. Interestingly, India has not faced major challenges from the Chinese here, like in Africa.

The deal is subject to government approvals as well as the pre-emption rights of Kazakhstan and other participants in the Kashagan field. State-run KazMunaiGas, Eni, ExxonMobil, Royal Dutch Shell and Total hold 16.81 per cent interest each in the production sharing agreement. Inpex Corp of Japan holds a 7.56 per cent interest. Conoco, which has been selling its overseas assets to cut its debt, said the book value of assets in Kashagan — which OVL has bought — was about $5.5 billion as of September 30; it would take an after-tax impairment of about $400 million.

When the deal is completed in the first half of 2013, and the necessary approvals are in place, ONGC will begin discussions with banks to raise funds. 

While the one-third of Kashagan’s oil that can be recovered may not make India energy independent, it will reduce the import bill. 

(This story was published in Businessworld Issue Dated 24-12-2012)