OVL to buy COP's 8.4% stake in Kashagan field for $5 bn

In its biggest acquisition ever, state-owned Oil & Natural Gas Corp (ONGC) on Monday agreed to buy US energy giant ConocoPhillips' 8.4% stake in the Kashagan oilfield in Kazakhstan for about $5 billion.

ONGC Videsh Ltd, the overseas arm of the state explorer, will pay a base price of $4.25 billion plus a share of working capital and other cash calls together with interest for the 8.4% stake in the field that will (rpt) will produce 370,000 barrels per day (18.5 million tons a year) of crude oil.

This will be the biggest acquisition by OVL, surpassing its $2.2 billion buyout of Russia-focused Imperial Energy in January 2009.

It will be the biggest acquisition by an Indian company this year, and the sixth largest in the history.

OVL is seeking oil and gas properties overseas to meet the nation's rising energy needs. India last year spent $140 billion on import of crude oil.

The stake buy in Kashagan field is subject to approval of governments of Kazakhstan and India and also to other partners in the Caspian Sea field waiving their pre-emption rights.

Italy's Eni, Royal Dutch Shell, France's Total, ExxonMobil and KazMunayGas have 16.81% stake each, while Inpex of Japan has the remaining 7.56%.

Industry sources said ExxonMobil and Shell are seeking bigger stakes in the Kashagan oil field and operating control before starting to expand the project.

OVL concluding the deal would depend on the two firms waiving their right of first refusal (ROFR) or pre-emption rights.

Kashagan, the biggest world oilfield discovery since 1968, holds an estimated 30 billion barrels of oil-in-place, of which 8-12 billion are potentially recoverable. Plans have already been firmed to ramp up output to 450,000 bpd (22.5 million tons per annum).

ConocoPhillips (COP) and OVL in separate but almost identical statements said the deal is expected to close in the first half of next year.

"The acquisition would mark OVL's entry into the largest oil proven North Caspian Sea of Kazakhstan. From Phase 1, the acquisition is likely to add an average annual production of about 1 million tons for a period of over 25 years with a peak of about 1.6 million tons," OVL statement said.

When Phase 2 and 3 are implemented, the OVL's share will be significantly higher.

This will be OVL's second acquisition this year. It had a couple of months back bought stake in a group of oil fields in Azerbaijan for about $1 billion.

Deals bigger than the one announced today include Tata Steel's $12.2 billion takeover of European steel giant Corus, Vodafone taking over controlling stake in Hutch-Essar from Hutchison for about $11 billion and Bharti Airtel's acquisition of Zain Telecom's African assets for about $10.7 billion.

Billionaire Anil Agarwal-led Vedanta Group's $8.6 billion acquisition of Cairn India is fourth and Hindalco Industries' buyout of Canadian firm Novelis Inc for $6 billion is fifth biggest.

COP expects proceeds of $5 billion, including the purchase price and expected working capital and closing adjustments, according to a statement from the Houston-based company.

Deals announced this year include Hinduja Group firm Gulf Oil Corp's acquisition of US-based speciality chemicals maker Houghton International Inc for $1.045 billion.

Last month, Indian Hotels Co offered $1.86 billion to buy Hamilton, Bermuda-based Orient-Express Hotels Ltd.

Besides, Rain Commodities reached an agreement this year to buy Belgium-based speciality chemicals group Ruetgers in a $918 million deal.

"OVL has finalised definitive agreements for the acquisition of the 8.4% participating interest of ConocoPhillips in the North Caspian Sea Production Sharing Agreement (NCS PSA) that includes the Kashagan field, in Kazakhstan," the company statement said.

The acquisition, subject to relevant government, regulatory approvals, priority rights and consortium pre-emption rights, is expected to close in the first half of 2013.

The Kashagan Field, located in the shallow waters (about 5 meters to 8 meters) of the Kazakh North Caspian Sea, is the world's largest current development project.

The acquisition also bears a significant strategic importance for India in terms of contributing towards its energy security.

OVL under the Perspective Plan – 2030 is targeting oil and gas production of 20 million tons of oil and oil equivalent gas by FY'18 from current 8.75 million tons. This is to rise to 60 million tons by FY'30.