Bloomberg News

ONGC Plans Joint Bids for Oil Areas to Fend off China Rivals

June 03, 2011

(Updates with share price in sixth paragraph.)

June 3 (Bloomberg) -- Oil & Natural Gas Corp. and Oil India Ltd. plan to bid jointly with other Indian state-run explorers and refiners to acquire assets overseas to compete with Chinese rivals as rising oil prices increase valuations.

“Oil assets around the world are getting expensive as crude prices increase and for us it makes sense to pool in money,” A.K. Hazarika, chairman of ONGC, India’s biggest energy explorer, said by telephone. “Bidding jointly helps us distribute risks and increases our chances of winning.”

State-run explorers and refiners had 381 billion rupees ($8.5 billion) of cash and reserves that they can pool and bid for assets from Russia to Canada, according to Bloomberg calculations based on company data as of March 31. Chinese companies have announced about $44 billion of oil and gas acquisitions overseas since January 2010, compared with $6.6 billion by Indians, data compiled by Bloomberg show.

“Jointly bidding may be the only way Indian companies can beat Chinese competition,” said Kamlesh Kotak, the Mumbai-based vice-president of research at Asian Markets Securities Pvt. “Going out alone to Angola possibly meant ONGC lost that bid.”

New Delhi-based ONGC failed to win Exxon Mobil Corp.’s 25 percent stake in an Angolan oil block after making a $2 billion offer, two people with knowledge of the matter said March 14. PT Pertamina is the preferred bidder for the stake and is in talks with Cnooc Ltd. on a possible joint bid to help fund the deal, an official at the Jakarta-based energy company said May 11.

Shares Gain

ONGC gained 0.7 percent to 283 rupees at 9:23 a.m. in Mumbai trading. The stock has dropped 12 percent this year compared with a 9.2 percent decline in the benchmark Sensitive Index of the Bombay Stock Exchange. Oil India rose 0.9 percent to 1,313.90 rupees.

Crude oil in New York has increased 10 percent this year following a 15 percent gain in 2010. This makes oil assets more expensive, Hazarika said.

ONGC and GAIL India Ltd. may bid for OAO Novatek’s liquefied natural gas project in Russia in partnership with Petronet LNG Ltd., Joeman Thomas, managing director of ONGC Videsh Ltd., said May 30. Petronet is a venture formed by government-owned oil companies.

ONGC Videsh, the overseas investment unit of ONGC, and four state-run companies including Oil India and refiner Indian Oil Corp. may together buy a 25 percent stake in a venture formed by combining the Russian assets of Sistema JSFC and Imperial Energy Corp., the Times of India reported May 31. Imperial Energy was acquired by ONGC Videsh in 2009.

Beating Competition

“By jointly bidding, we can attempt to buy large assets and have a better chance of beating competition,” T.K. Ananth Kumar, Oil India’s director of finance, said by telephone from Mumbai yesterday, declining to comment on the Times of India report. “The government’s thinking is clear on this. It is desirable the public-sector companies tie up as much as possible.”

ONGC had 224.5 billion rupees of cash and near-cash and Oil India had 117.7 billion rupees at the end of March, according to data compiled by Bloomberg.

ONGC is in talks to acquire oil sands reserves in Canada and may increase investments in Kazakhstan to help offset declining domestic production, Hazarika said May 3.

India plans to set up a sovereign wealth fund and use part of its $277.2 billion foreign currency assets to help acquire assets. The International Energy Agency estimates India’s energy use may more than double by 2030 to the equivalent of 833 million metric tons of oil from 2007. The Paris-based agency says China’s use may rise 87 percent to 2.4 billion tons in the period.

China had foreign currency assets of $3 trillion as of March 31, according to data compiled by Bloomberg. That’s more than double the size of the $1.4 trillion Indian economy.

--Editors: John Chacko, Ryan Woo

To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net


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