ONGC Videsh Ltd (OVL) has lost the race to buy an 8.4 per cent stake in a Kazakhstan oil field to Chinese firm CNPC. Had the purchase come through - for $5 billion from global exploration major ConocoPhillips - it would have been OVL's biggest ever acquisition till date.
A news report from Moscow by Reuters on Tuesday (July 2) said CNPC would buy a stake in Kazakhstan's giant Kashagan oil project, through back-to-back deals with the government-owned KazMunaiGaz through which ConocoPhillips, in turn, would exit. Lyazzat Kiinov, chief executive of KazMunaiGaz, confirmed the deal structure to the news agency, adding that CNPC would pay more than $5 billion for the stake.
Tuesday was the last day for the Kazakhstan government to take a decision.
However, OVL Managing Director D.K. Sarraf told Business Today he was not aware of this development. OVL is the overseas arm of the government owned ONGC, the biggest oil and gas producer in India. CNPC, promoted by the Chinese government, is the biggest oil and gas producer in China.
The Kashagan Field, located in the shallow waters of the North Caspian Sea, is the world's largest oil and gas exploration project under development. Kashagan's consortium partners are leading global oil companies, Eni, Total, Shell, ExxonMobil, along with KazMunaiGaz, each with 16.81 per cent participating interest, while Japan's Inpex has 7.56 per cent.
OVL had finalised definitive agreements for the acquisition of the 8.4 per cent participating interest of ConocoPhillips in the Kashgan field in November last year. "The acquisition is subject to relevant government, regulatory approvals, priority rights and consortium pre-emption rights," OVL had said.
The acquisition would have helped OVL arrest its overall falling output due to problems in Sudan and Syria. Production from the Kashagan field is expected to start in the current calendar year.
In financial year 2012/13, OVL's production fell to a seven-year low of 7.26 million tonne. It had achieved a record output of 9.45 million tonne in financial year 2010/11. With an estimated contribution of 4.2 million tonne by 2028, OVL's 8.4 per cent stake in Kashgan field would have been critical in achieving its target of 60 million tones by 2030.
The latest development once again highlights the intense competition that India faces in international energy buys, especially from China.
India has lagged China in acquiring energy assets worldwide and it is now keen to collaborate with China in this area. Chinese state oil companies like CNOOC, Sinopec and PetroChina have been among the world's most acquisitive oil firms in recent years. With their financial independence, these Chinese companies have been very successful in sealing big acquisitions, while Indian public sector energy companies have not been as successful in closing big overseas acquisitions owing to delays in securing government approvals.
"We can't really compete with China. The best thing would be to collaborate with China," ONGC Chairman Sudhir Vasudeva had said last year.