OVL, Oil India to buy Videocon’s stake in Mozambique gas field for $2.48 bn

ONGC Videsh Ltd (OVL) and Oil India Limited (OIL) are buying Videocon Industries 10-per cent stake in the Rovuma Area 1 Offshore Block in Mozambique for $2.48 billion, the largest overseas gas block acquisition by state-owned companies.

The proposed deal size could double if both companies are able to bag Anadarko Petroleum's 10-per cent stake in the block, where the US energy company is the operator and prefers Royal Dutch Shell as its partner in order to gain latest gas extraction technology.

For Videocon, the sale brings in a massive windfall from its passive investment made in early 2008 after it initially paid around $75 million for its 10-per cent stake and spent around $200 million during phase 1.

Interestingly,  the deal comes two months after China's largest oil producer CNPC acquired a 28.57 per cent stake in the adjacent gas block to Rovuma from Italy's Eni SpA for $4.2 billion.

Mozambique may hold 250-trillion cubic feet of gas reserves, according to the country's energy company Empresa Nacional de Hidrocarbonetos (ENH), and its offshore fields may hold enough gas to meet world consumption for more than two years.

The acquisition of Videocon's stake will be carried out through a newly incorporated entity, in which OVL and OIL are expected to hold 60 per cent and a 40 per cent stake respectively.

Although the acquisition is subject to the approvals of the governments of Mozambique and pre-emption rights of other partners at Rovuma Area 1, the deal is expected to sail through unless a superior competing bid comes from other suitors.

Anadarko is the operator of Rovuma-1 with a 36.5-per cent stake. Other stakeholders include Japan's Mitsui with 20 per cent, Bharat Petroleum with 10-per cent and Thailand's PTT Exploration & Production with 8.5 per cent.

The ownership of the remaining 15-per cent participating interest, currently held by ENH, can be altered during the production phase.

Last year, this highly prolific gas block had attracted a bidding war between Shell and PTTEP for UK-listed African explorer Cove Energy, which held an 8.5-per cent stake in Rovuma-1.

OVL and GAIL had formed a consortium and was reported to have bid around Rs6,000 crore ($1.2 billion) for Cove Energy, but later backed out after Shell trumped it with a higher bid of $1.57 billion in February 2012.

But PTTEP entered the fray with a $1.76-billion offer, and after a protracted bidding war that saw both oil giants raising their bids. Shell finally threw in the towel and PTTEP walked away with a sweetened $1.9 billion bid.

During the Shell-PTTEP bidding war, the Rovuma 1 resource potential was pegged at around 12 trillion cubic ft of gas with the potential for more than 30 trillion cubic feet.

Since then, there have been more discoveries in the field and the estimated recoverable resources have doubled to around 35 to 65 trillion cubic feet, which is more than six times the UK's existing reserves.

Rovuma 1 covers about 2.6 million acres in the deep-water Mozambique and is the largest gas discovery offshore East Africa.

In February, Houston-based Anadarko had put on sale a 10-per cent stake in the Rovuma-1, with the plan of getting Shell as its partner in order to bring in its LNG expertise of building and operating LNG plants and marketing the gas.

Shell's CFO, Simon Henry had last month acknowledged that it was in talks on buying the stake but said that Anadarko's price expectations are too high.

The Hague-based Shell is one of the world's largest LNG producers with LNG sales of 18.83 million tons in 2011. It is the industry leader in freezing natural gas into LNG for export in tankers around the world. Shell and its joint ventures supplied more than 30 per cent of global LNG volumes.

Anadarko and Eni agreed last year to build an onshore liquefaction facility that will consist of at least two liquefaction and purification units, known as trains, with the flexibility to expand to 10 trains, each with the capacity to process 5 million tonnes per annum.

Under chairman Sudhir Vasudeva ONGC has gone on an overseas acquisition spree in order to augment its ageing oil fields.

"Considering the growing importance of natural gas in the primary energy basket, this acquisition is a significant step by OVL/ONGC group towards the energy security of our country", said Vasudeva.

This year, OVL acquired two oilfields in the Azerbaijan sector of the Caspian Sea and 2.36-per cent interest in the Baku-Tbilisi-Ceyhan pipeline from US-based Hess Corp for$1billion.

It has also tabled a $5-billion bid for Conoco Phillips 8.42-per cent stake in the massive Kashagan oilfield located in the Caspian region of Kazakhstan.

Seven partners in this field have waived their first right of refusal, while the Kazakhstan state owned oil company Kazmunaigas now has till end of July to decide whether to exercise its pre-emption right. (See: Kazakh oil project partners approve ONGC's acquisition of ConocoPhillips' stake)

It is likely to lose out on this deal since Kazakhstan plans to buy the stake and resell it a Chinese energy company.