OVL holds off on 11% Vankor buy

THE board of ONGC Videsh (OVL) has put on hold a proposal to acquire a 11% stake in Rosneft’s Vankorneft that runs the Vankor oil and gas fields in East Siberia. The OVL board wants the state-owned explorer to negotiate a “better price” for the 11% deal compared with a 15% purchase in the same asset in September 2015. Vankorneft was set up in 2004 to develop the Vankor oil and gas condensate field.

THE board of ONGC Videsh (OVL) has put on hold a proposal for acquisition of 11% in Rosneft's Vankorneft that runs the Vankor oil and gas fields in East Siberia. The OVL board wants the government owned explorer to negotiate a “better price” for the 11% deal as compared with a 15% purchase in the same asset in September 2015.

“The Board wants OVL to negotiate the Vankor deal for a better price,” said an official privy to the developments. OVL, the overseas arm of India's flagship explorer ONGC, forked out $1.268 billion or around $3.4/barrel for 15% stake in Vankorneft. The additional 11% would cost another $930 million. When contacted, Narendra K Verma, managing director of OVL declined to comment on the issue.

Interestingly, a consortium of Indian public sector companies including Indian Oil Corporation (IOC), Oil India (OIL) and Bharat PetroResources (BPRL) are on the last leg of finalising a 23.9% purchase in Vankor neft at the same rates, which OVL paid in September. These firms would fork out $3-3.5 billion for the stake in Vankorneft along with another 29.9% of Russia’s Rosneft-operated Taas-Yuryakh oil and gas fields and final agreements are expected to be signed in June.

It may become difficult for OVL to negotiate and sweeten the deal with Rosneft after Indian consortium agrees to go ahead with same price. Earlier, OVL wanted to pick up entire 49.9% stake in Vankorneft by itself. However, other Indian firms including IOC showed keenness to pick up equity stake in the producing asset. Had OVL bought the 49.9% stake in Vankorneft, its hydrocarbon production portfolio would have shot up by 11 million tonnes in a single year. In FY16, OVL’s output stood at 8.914 million tonnes of oil equivalent (mtoe), hardly 1% more than the 8.874 mtoe it had produced in the previous year.

Rosneft's chief executive Igor Sechin visited New Delhi in March to sign the preliminary heads of agreement (HoA) for the acquisitions with Indian companies.

It is to be seen if Prime Minister Narendra Modi government could push its diplomatic relationship with Kremlin to get a better deal for OVL. New Delhi’s interest in increasing economic cooperation with Kremlin is seen as an extension of several rounds of talks between Prime Minister Modi and Russian President Vladimir Putin.

Currently, the production at Vankorneft is hovering around 4,42,000 barrels per day, double the output of Barmer, India’s largest onshore field, which is operated by Cairn India. OVL share would be 66,000 barrels per day. OVL is selling the crude oil overseas.

Vankorneft, Rosneft subsidiary, was established in 2004 for development of Vankor oil and gas condensate field – the largest of the fields, discovered and put into operation in Russia in the last 25 years. The field is situated in the Turukhansky district of Krasnoyarsk Territory, 142 km away from the city of Igarka. The initial recoverable reserves of the Vankor field by the January 1 2015 are estimated at 476 million tonnes of oil and condensate and 173 billion cubic meters of gas. The acreage of the field is 447 square km.