New Delhi: India's state-owned oil explorer is attempting to revive a stalled overseas expansion plan by buying into a $46 billion project that's eight years behind schedule and cost twice as much as expected.
Oil & Natural Gas Corporation (ONGC) announced the company's biggest overseas acquisition yesterday, the $5 billion purchase of ConocoPhillips's 8.4 per cent stake in Kazakhstan's Kashagan project. Touted as the biggest find since the 1960s when it was discovered in 2000, the field beneath the Caspian Sea is expected to produce 370,000 barrels a day from next year.
For ONGC, as the state-controlled producer is known, the deal signals an acceleration in overseas acquisitions as the New Delhi-based producer spends Rs11 trillion ($198 billion) by 2030 to increase production at home and abroad. Deals slowed after completing the $2.2 billion purchase in 2008 of Imperial Energy Corporation, a UK company with fields in Siberia where production started to decline quickly.
"The worst for the Kashagan field, including the delays, is behind everyone," D. K. Sarraf, managing director of ONGC Videsh, the company's overseas unit, said in an interview. "The future of this really large field is good. We're fully prepared to participate in the field, including expansion."
ONGC rose as much as 1.6 per cent and traded 0.4 per cent higher at Rs251 in Mumbai, giving it a market value of $38.6 billion. The Kazakh government and project partners including Exxon Mobil and Eni have the right of first refusal on the sale, according to Monday's statement. The Central Asia nation will consider buying Conoco's stake and has two months to decide, oil and gas minister Sauat Mynbayev said in the capital, Astana.
After completing the first phase of the project, the Kazakh government and partners in Kashagan must decide on whether to expand the project to 1 million barrels a day, a commitment that would cost tens of billions of dollars. Drilling at the field is complicated by winter temperatures that freeze the Caspian and an oil reservoir that contains lethal gas.
"Fields of Kashagan's size are always a challenge and ONGC's experience from Imperial hasn't been the best, so hopefully they've learnt from that," said Kamlesh Kotak, Mumbai-based vice-president of research at brokerage firm Asian Markets Securities.
"Running the field at full potential is going to be a challenge. Having been beaten by the Chinese in the past, ONGC has to do all it can to get what it can now." In September, ONGC agreed to spend $1 billion to buy Hess' 2.7 per cent stake in Azerbaijan's largest oil field and an associated pipeline. BP, the operator of the Azeri- Chirag-Guneshli fields, has been criticised by the Azeri government for a faster-than-expected decline in production.
ONGC scrapped a plan to revive production for Imperial's fields just months after completing the purchase of the company because the fields didn't perform as expected. The Indian company this year backed away from buying a 25 per cent stake in a second Russian producer, Bashneft, because they couldn't agree on a price.
China has been more aggressive than India in pursuing overseas oil and gas acquisitions as the world's most populous nations look for oil fields to meet soaring energy demand.China's Cnooc offered $17 billion for Canada's Nexen this year. China Petrochemical Corporation bought Addax Petroleum, based in Canada and focused on Africa and the Middle East, in 2009 for $8.9 billion. By contrast, India's biggest prize before Monday's deal was Imperial Energy. ONGC produced about 175,000 barrels a day) overseas in the year ended in March. -