By Santanu Choudhury
NEW DELHI--Oil & Natural Gas Corp.'s (500312.BY) plan to pay
as much as $5 billion to ConocoPhillips (COP) for a stake in a
Kazakhstan oil project could herald more such deals by Indian
energy companies seeking to offset declining domestic production in
the face of rising energy demand.
The purchase by ONGC Videsh Ltd., the state-owned company's
overseas investment arm, will likely help India's largest explorer
to arrest a steady decline of oil and gas production in recent
years.
ONGC's falling production mirrors declining oil and gas output
and stalled coal production growth throughout India, as both
state-run and private energy companies seek to buy assets overseas
to avert problems at home. Coal India Ltd. (533278.BY) Chairman S.
Narsing Rao told Dow Jones Newswires recently that the monopoly
coal miner isn't likely to increase coal deliveries for at least
three years due to bureaucratic bottlenecks and a lack of transport
infrastructure, highlighting India's increasing import dependency
to fuel a still-expanding economy.
The country's shortcomings on the energy front came into sharp
relief in July, when more than half of the population was plunged
into darkness in the country's worst-ever blackout.
With Kazakhstan's Kashagan oil field set to begin production in
2013, ONGC Videsh likely paid a premium for the 8.4% stake.
Mumbai-based Ambit Capital Pvt. analyst Dayanand Mittal said
more such deals are "definitely" on the horizon, though perhaps not
at quite as high a price tag as the Kashagan stake given the
premium, "but a number of deals could happen in the billion-dollar
club."
The latest deal is evidence of more nimble government decision
making, he added, noting that Indian firms have lost acquisition
opportunities previously to overseas rivals, especially from
China.
In September, ONGC Videsh agreed to buy a 2.7% stake from Hess
Corp. in the Azeri, Chirag and Guneshli fields in Azerbaijan as
well as a 2.4% interest in the associated BTC pipeline for a total
of $1 billion.
The world's second-fastest-growing major economy imports 80% of
the crude oil it requires, putting a heavy burden on its coffers
and undermining its energy security. India's finance minister P.
Chidambaram said in October that inflation is expected to be
"sticky"--the headline rate was 7.45% in October, cooling slightly
from September's 7.81%--in the near term, partly due to the size of
the country's energy import bill.
Securing access to overseas producing fields will help to cap
costs associated with imports, Mumbai-based Edelweiss Securities
Ltd. analyst Niraj Mansingka said by telephone.
ONGC Videsh Ltd. said in a statement Monday that the Kashagan
acquisition will give it access to the largest proven oil field in
Kazakhstan's North Caspian Sea area--provided it gains necessary
government and regulatory approvals and crosses other potential
hurdles, such as other stake owners exercising priority or
pre-emption rights.
The first phase of the project will produce an average of 1
million metric tons a year over 25 years, with peak annual output
of around 1.6 million tons, it said.
ConocoPhillips said Monday that it had notified government
authorities in Kazakhstan and other consortium members--ENI SpA
(E), Exxon Mobil Corp. (XOM), KazMunaiGas, Royal Dutch Shell PLC
(RDSB), and Total SA (TOT)--of its intent to sell.
Kaustav Mukherjee of the Boston Consulting Group said obtaining
approval shouldn't be a problems, as "Indian companies are seen by
their Western counterparts as fairly non-threatening compared with
Chinese companies."
ONGC accounted for 62% of India's crude-oil and 49% of
natural-gas output in the year ended March 31. The company said
earlier this month that it will miss its production forecast for
2012-13 and 2013-14 due to project delays. It has seen its output
fall each year for the past five years.
Like other Indian oil companies, ONGC has sought to increase
domestic production by forging partnerships with foreign energy
companies.
Earlier this month, the company sold a 26% stake of an India
east coast block to Japan's Inpex Corp. (1605.TO) as part of
efforts to boost production. An executive at the company said it
aimed to sell stakes in some of its deep-water and ultra-deepwater
blocks as well as enter into joint ventures with global oil and gas
majors to accelerate exploration and development of its
acreages.
Reliance Industries Ltd., (500325.BY) has adopted a similar
approach to gaining access to the latest technologies. Last year,
the private company sold a 30% stake in 21 oil and gas blocks to BP
PLC (BP).
Write to Santanu Choudhury at santanu.choudhury@dowjones.com