OVL turns down Mittal offer to buy stake in Kazakh oil company

Last Updated 18 July 2010, 10:30 IST

Mittal's holding company, Mittal Investments Sarl, had in April, 2007, bought half of Russian LUKoil's 50 per cent stake in Caspian Investment Resources for USD 980 million.
Two years later, it started looking for an opportunity to sell the shareholding and offered the stake to OVL, the overseas investment arm of state-owned Oil and Natural Gas Corp (ONGC), two persons familiar with the development said.

"OVL sought certain information on the fields like deposits it had, future production profile and prospects, but did not get a response from MIS," one of them said. "OVL stopped pursuing the opportunity after that."

Industry sources said OVL may have declined Mittal's offer because it thought the company was a sinking ship with oil production falling and actual reserves not matching the announced ones.

Interestingly, LUKoil which had a pre-emptive right to buy the stake, has also dropped plans to buy MIS's shareholding. Mittal Investment and LUKoil now hold a 25 per cent stake each in Caspian Investment Resources (CIR), while the rest is with Kazakhstan's KazMunaiGaz.

Sources said CIR was to be originally acquired by ONGC-Mittal Energy Ltd, the equal joint venture of OVL and MIS, but the India-born billionaire went ahead on his own, citing opposition to OMEL from Lukoil. He later delayed transferring the assets to OMEL, citing opposition to such a move by the Kazakhstan government.

MIS is now looking at selling its entire holding in CIR and sources said Kazakhstan's state-owned KazMunaiGaz E&P may be looking to buy Mittal's stake.

LUKoil had in 2005 acquired Canada's Nelson Resources (later renamed the CIR) for USD 2 billion. CIR owns stakes in four oil fields in Kazakhstan -- Alibekmola and Kozhasai (on an equal basis with KazMunaiGaz), North Buzachi (50 per cent with China's CNPC) and Arman (50 per cent with Shell) and 100 per cent in the mining project Karakuduk.
The proved and probable hydrocarbon reserves of these deposits are 269.6 million barrels.

Current production from the fields is more than 40,000 barrels per day and is set to increase in the coming years.

Sources said Mittal had last year pulled out of the Satpayev oilfield in the Caspian Sea. MIS had used the Kazakh government to muscle its way into the Satpayev oilfield where OVL was shortlisted for a stake. However, just on the eve of signing an agreement for the field, MIS announced it was no longer interested.

OVL, which had in 2007 relented to the Kazakh condition of partnering Mittal in the highly prospective field, wrote to Almaty, saying the 25 per cent stake in Satpayev would now be acquired by it and not by OMEL. It will invest the entire USD 400 million required to develop the field on its own.

Satpayev is situated in a highly prospective region of the North Caspian Sea and in proximity to at least four fields. A peak output of 287,000 barrels per day is envisaged from the 256 million tonnes of reserves in the field.
Kazakhstan had initially identified the Satpayev and Makhambet blocks in the Caspian Sea for giving a 50 per cent stake in either of them to OVL. Later, it reduced the stake on offer to 25 per cent on the condition that OVL teamed up with Mittal, who has steel plants in that country.

OVL relented and in June, 2007, made an attractive commercial proposal to KazMunaiGas, but in subsequent negotiations, Kazakhstan's state-run firm did not agree on giving operatorship to OVL during the exploratory and appraisal stages.
Kazakhstan is one of the 10 countries Mittal had originally identified for exclusive pursuit of hydrocarbon opportunities in his JV with ONGC. The state-run firm wanted to use Mittal's clout with the governments in Africa and Central Asia, particularly Kazakhstan, to bag oilfields.

Mittal and ONGC had in July, 2005, agreed to participate on an exclusive basis through OMEL in Angola, Azerbaijan, Congo Brazzaville, Democratic Republic of Congo, Indonesia, Romania, Kazakhstan, Trinidad and Tobago, Turkmenistan and Uzbekistan.

(Published 18 July 2010, 10:30 IST)

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