ONGC Videsh looks to acquire stake in Rosneft’s Tagul field

As part of India’s energy security strategy to leverage depressed crude oil prices to secure overseas assets, state-run ONGC Videsh Ltd (OVL) has evinced interest in acquiring a 49% stake in Rosneft Oil Co.’s Tagul field.

This comes in the backdrop of the sanctions-hit Russia looking at India and China to shore up its energy revenues. Though InfraCircle couldn’t ascertain the exact deal value, it is expected to be at least $1 billion.

“OVL is evaluating to acquire a 49% stake in the discovered Tagul field,” said a person aware of the development requesting anonymity.

According to Rosneft, Tagul has 286 million tonnes (MT) of oil and condensate, and 228 billion cu. metres of gas as recoverable reserves.

Driven by government to government facilitation, Indian firms have stepped up their effort to secure energy assets in Russia. OVL, the overseas arm of Oil and Natural Gas Corp. Ltd (ONGC), acquired a 15% equity stake in Russia’s JSC Vankorneft from Rosneft in 2015 for $1.27 billion. In addition, OVL also plans to acquire another 11% stake in Russia’s second-largest field by production.

This is a change in strategy on OVL’s part from the Vankorneft acquisition as the Tagul field is not a producing field but a discovered one. In addition to the purchase cost for the Tagul field, OVL will have to share the cost of bringing the field to the production stage.

Under the US and the European Union sanctions, Rosneft’s ‘Asian pivot’ strategy was articulated by its chairman Igor Sechin last year. As large producers are seeking consumers, Sechin had said his firm is targeting India and China as consumers for its production. This comes in the backdrop of a dramatic fall in international energy prices, which has made oil-producing countries financially vulnerable.

OVL is stepping on its efforts for overseas acquisitions as according to ONGC’s Perspective Plan 2030, the subsidiary will have to contribute 60 MT of the 130 MT targeted, with the balance coming from ONGC’s domestic production.

Queries emailed to the spokespersons of OVL and ONGC on 28 July remained unanswered. Though an external spokesperson for Rosneft said queries sent to the company on 29 July will be answered, no response was received till the filing of the report.

India imported 202.85MT of crude oil in 2015-16 for Rs.4.16 trillion, according to Petroleum Planning and Analysis Cell, which works under the ministry of petroleum and natural gas. For 2014-15, India imported 189MT of crude oil at a cost of Rs.6.87 trillion. The Narendra Modi-led National Democratic Alliance government aims to half India’s energy imports by 2030.

Experts believe that such investments are going to be beneficial for India in the long run.

India’s investments in Russia is opportunistic and will help in addressing the country’s energy security concerns, said R.S. Sharma, former chairman and managing director, ONGC.

An India consortium comprising of Indian Oil Corp. Ltd, Oil India Ltd and Bharat Petroleum Corp. Ltd also struck a $2.02 billion deal to acquire 23.9% equity stake in the Vankor field. The consortium comprising of state-run firms also inked an agreement to acquire 29.9% stake in Taas-Yuriakh oil field in east Siberia for around $1.3 billion.

India, which imports one-third of its energy requirements, has built up a significant energy portfolio in Russia with an investment of around $4.25 billion. It started with investments in Sakhalin-1 project in Russia’s far-east offshore, India’s most successful one till date. However, OVL’s $2.1 billion bet by acquiring UK’s Imperial Energy Corp. Plc’s Russian assets has hit the skids and prompted the Comptroller and Auditor General of India to find fault in the purchase.

ONGC produced 57.38MT of oil and oil-equivalent gas in 2015-16. OVL has 37 projects in 17 countries and has invested $23.81 billion in overseas assets.

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