ONGC’s $5-bn bid for stake in Kashagan oilfield hangs in balance

India's state-owned Oil and Natural Gas Corporation (ONGC) will have to wait until 2 July to find out the fate of its proposed $5 -billion acquisition of ConocoPhillips 8.4-per cent stake in the giant Kashagan oilfield.

Kazakhstan's minister of oil and gas Sauat Mynbayev today told Reuters on the sidelines of the 6th Astana Economic Forum that the state will decide on the deal by 2 July.

Mynbayev gave no reason for extending the deadline, although Kazakhstan had until 25 May to decide whether it would exercise its option of buying the stake.

In November 2012 ONGC's overseas arm ONGC Videsh Ltd (OVL) agreed to pay $5 billion to buy ConocoPhillips' 8.4-per cent stake in the Kashagan oilfield, its largest ever overseas acquisition. (See: ONGC acquires ConocoPhillips' Kazakh oilfield stake for $5 bn)

The deal is subject to Kazakhtan government approvals as well as the pre-emption rights of Kazakhstan and other stakeholders in the Kashagan oil field, which is jointly controlled by state-run KazMunaiGas and six international companies, including Eni, ExxonMobil, Inpex Corp, Royal Dutch Shell, and Total.

Until the deadline of January 2013, the international partners did not opt to exercise their rights, which only left KazMunaiGas to decide on the deal.

Mynbayev had last month said that KazMunaiGas may not hike its stake in Kashagan, but would not mind buying the stake and later selling it to China.

China is interested in buying ConocoPhillips's stake in the Kashagan oilfield, Mynbayev had said, and added that, "A Chinese company acquiring the stake in Kashagan, will boost the volume of crude to be shipped to China.''

Kazakhstan is reported to have sounded out the Kashagan partners about bringing one of China's state-run oil companies as a partner in the project.

According to rumours in the country's capital Asthana, state-owned China National Petroleum Corp, known as Sinopec or Cnooc, may be the eventual buyer.

Kazakh President Nursultan Nazarbayev, who has been in office since the country's independence in 1991, had on 6 April met his Chinese counterpart Xi Jinping and the head of Sinopec, offering access to resources in exchange for investment into the Central Asian economy, the report added.

Discovered in July 2000, the Kashagan oil field in the Caspian Sea has been described as the largest field found in the past 30 years and the largest outside the Middle East, which will cost around $136 billion to develop.

The field, located in shallow depth of 5-8 metre, is estimated to hold around 38 billion barrels of reserves of oil, of which 13 billion are proved to be recoverable, and 18 trillion cubic feet of gas.

The project is the largest but most complex hydrocarbon development currently being undertaken anywhere in the world, and the consortium has spent an estimated $47 billion in the first phase of development.

The start-up of the project has been delayed since 2005 due to cost overruns and disputes with the Kazakhstan government over taxes.

The project partners are also waiting for the Kazakhstan government to approve the estimated $100 billion cost of the project's expansion and have demanded an extension of 20 years of the production-sharing agreement in order to give them more time to recover their investment due to multiple delays and cost overruns over the past decade.

The development of Kashagan represents several technical, supply chain complexity, safety, engineering logistical, environment challenges, high pressure reservoir with dangerous levels of hydrogen sulphide, making it one of the most complex hydrocarbon development currently being undertaken anywhere in the world.

First production from the Kashagan field is now expected in the second quarter of this year.

Through the deal, OVL expected to ramp up its average annual oil production by about 1 million metric tonnes per annum (mtpa) for a period of over 25 years with a peak capacity of about 1.6 mtpa from phase 1 of the operation and significantly increase its share, when phases 2 and 3 of the project become operational.

ONGC already has a working relationship with KazMunaiGas since both companies have an agreement in place to explore a large block in the Caspian Sea.

Although India has good relations with Kazakhstan, the former Soviet nation is China's biggest trading partner. Its trade with China is almost $28 billion and has the potential to grow further, according to analysts

China has offered Kazakhstan billions of dollars in loans for infrastructure projects and is building a new railroad across the country and an oil pipeline connecting both countries.