Bloomberg News

ONGC, GAIL Said to Plan Bid for Part of Exxon Kashagan Stake

June 08, 2011

(Updates with comment from analyst in fourth paragraph.)

June 8 (Bloomberg) -- Oil & Natural Gas Corp., India’s biggest energy explorer, and GAIL India Ltd. are in talks to buy part of Exxon Mobil Corp.’s stake in Kazakhstan’s Kashagan field, two people with direct knowledge of the matter said.

The state-owned companies have made a non-binding offer and will evaluate the oil and gas field in the Caspian Sea before making a final bid, one of the people said, asking not to be identified before an official announcement. The investment needs approval from India’s Cabinet, the people said.

ONGC is searching for energy assets worldwide to make up for a fuel shortfall at home, where Prime Minister Manmohan Singh has targeted economic growth of more than 8 percent. The start of production from Kashagan has been delayed to the end of 2012 from the original 2005 deadline to allow for technical challenges in the area.

“The field has been a non-starter,” said Sandeep Randery, an analyst with Brics Securities Ltd. in Mumbai. “All that investment would only make sense if production can start very soon. Significant amounts of ONGC’s cash and resources could get blocked if they go ahead with this large deal.”

ONGC Videsh Ltd., the explorer’s overseas unit, and GAIL, India’s biggest gas distributor, plan jointly to buy an 8.4 percent stake from Exxon in Kashagan, valued at $5 billion, the Hindustan Times reported today, citing an unidentified person.

Cash in Hand

The explorer had 224.5 billion rupees ($5 billion) of cash and near cash and GAIL had 21.3 billion rupees as of March 31, according to data compiled by Bloomberg.

ONGC fell as much as 2.2 percent to 270.40 rupees and was at 272.15 rupees at 12:02 p.m. in Mumbai trading. The stock has declined 15 percent this year compared with a 10 percent drop in the benchmark Sensitive Index of the Bombay Stock Exchange.

ONGC Videsh Managing Director Joeman Thomas didn’t answer two calls to his mobile phone. GAIL Chairman B.C. Tripathi’s mobile phone was switched off and he couldn’t be reached for comment on his office telephone.

Exxon executives couldn’t be reached at the company’s press office in Kazakhstan and a voice mail left at its Singapore office wasn’t immediately answered.

In 2008, partners in the Kashagan venture led by Eni SpA agreed to pay higher royalties and cede shares to state-run KazMunaiGaz National Co. after the government criticized cost overruns and delays.

Production Target

KazMunaiGaz holds a 16.8 percent stake in Kashagan, as do Eni, Royal Dutch Shell Plc, Exxon and Total SA, according to the website of their North Caspian Operating Co. venture. ConocoPhillips holds 8.4 percent and Japan’s Inpex Corp. has 7.56 percent.

Kashagan, operated by Eni, is expected to produce 109.5 million barrels a year, or 300,000 barrels a day, by 2014, according to KazMunaiGaz.

ONGC lost a bid to buy Exxon’s stake in an Angolan oil field in March and has lagged behind its Chinese rivals as the world’s most populous nations seek overseas assets to boost energy security.

The explorer plans to increase investments in Kazakhstan after agreeing to buy a 25 percent stake in the Satpayev exploration block there, Chairman A.K. Hazarika said May 3.

ONGC Videsh lost 11.8 billion rupees in the 15 months ended March 2010 because of lower production from its Russian fields operated by unit Imperial Energy Corp., the government auditor said March 24. Production of 15,803 barrels a day of oil from the Imperial fields was less than the estimated 35,000 barrels a day.

Imperial was bought by ONGC for 1.4 billion pounds ($2.3 billion) in a transaction completed in 2009.

--Editors: John Chacko, Paul Gordon

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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