Russia's subsoil agency Rosnedra late last month rejected the bid of Nord Imperial, a unit of ONGC's Russian firm Imperial Energy, on the grounds that it lacked financial capability to develop the Arctic fields.
"Nord Imperial had on September 21 submitted an application for qualification to bid for rights to develop the 1.02 billion barrels Trebs and Titov fields in Timan-Pechora, northwest Russia," an official with direct knowledge of the bid said.
"The bid clearly mentioned that Nord Imperial will have financial backing and support of its parents Imperial Energy and ONGC Videsh Ltd," he said. "Clearly, the Federal Agency for Management of Mineral Resources chose to ignore financial support letters from OVL in its decision to disquality Nord Imperial."
The Russian agency also stated that Nord Imperial had failed to present the approval of the company's board or shareholders for the bid, a claim which the Indian executive rubbished saying the application was accompanied by company board resolution.
"These are nothing but flimsy grounds to keep competition away," he said.
Analysts suggest Rosnedra's disqualification of most of the six contenders, including Russian firms Lukoil and Gazpromneft and BP's Russian joint venture TNK-BP for unspecified errors in their applications, was tailored to allow a local oil firm Bashneft win the contest.
Bashneft is part of the politically well-connected Sistema group, owned by Vladimir Yevtushenkov, who is said to have received support for Bashneft's bid from President Dmitry Medvedev, international media report said.
Surgutneftegaz, the only other firm to be qualified for the December 2 tender for the fields, was in the race only to lend it a veneer of competition.
Media reports suggest TNK-BP and Lukoil plan to challenge their disqualification in court.
Trebs and Titov, Russia's largest undistributed fields, may hold more than 200 million tonnes of recoverable reserves. This is about half the reserves of Rosneft's Vankor, the country's largest new oil development.
The deposits will be sold at a government auction on December 2.
Nord Imperial is part of Imperial Energy, which ONGC Videsh Ltd, the overseas investment arm of state-owned firm, had acquired in 2008 for USD 2.1 billion.
The source said ONGC had previously expressed interest in the oil and gas fields in the Arctic and had been looking at a possible joint bidding with state-controlled Rosneft, Russia's biggest oil producer.
But OAO Rosneft dropped plans to bid for Trebs and Titov. NGC and Rosneft are partners in Russia's Far East Sakhalin I project, each with a 20 per cent stake.
Sakhalin-I has been producing oil for several years and reached peak production of 11.2 million tonnes in 2007. Its current output is 155,000 barrels per day (bpd), and is expected to touch 200,000 bpd in the next calendar year.