OVL-OIL to buy Videocon's stake in Mozambique field for $2.5 b

OVL-OIL to buy Videocon's stake in Mozambique field for $2.5 b

In the third acquisition in ten months, Oil and Natural Gas Corp (ONGC) along with Oil India Ltd will buy Videocon Industries' 10 per cent stake in a giant Mozambique gas field for USD 2.5 billion and may pay a similar amount to buy a further 10 per cent stake from Anadarko of US.

ONGC Videsh Ltd, the overseas arm of Oil and Natural Gas Corp (ONGC), sewed India's second biggest energy acquisition ever when it along with OIL agreed to pay USD 2.475 billion for Videocon's 10 per cent stake in the Rovuma-1 field.

The Rovuma field may hold as much as 65 Trillion cubic feet (Tcf) of inplace gas reserves, more than 10 times the reserves in Reliance Industries' eastern offshore KG-D6 fields, and has the potential to become one of the world's largest liquefied natural gas (LNG) producing hubs by 2018.

Besides the acquisition price, OVL-OIL will have to pay their share of the field development cost and the LNG plant. Field development and the LNG unit will cost a total of USD 15 billion dollars and their share will come to USD 1.5 billion.

"OVL and OIL signed definitive agreements in Singapore on June 25 with Videocon Mauritius Energy Ltd to acquire 100 per cent of shares in Videocon Mozambique Rovuma 1 Ltd, the company holding a 10 per cent participating interest in the Rovuma Area 1 Offshore Block in Mozambique (Area 1) for USD 2,475 million," the two firms said in a press statement.

The acquisition will be done through a joint venture that OVL and OIL have floated. OVL will hold 60 per cent of the venture and OIL the remaining 40 per cent. The transaction is to close in the last quarter of 2013.

OVL-OIL need approval of the Mozambique and Indian government, regulatory permissions and existing partners in Rovuma-1 area waiving off their pre-emption rights for the deal to go through.

Since September last year, OVL has announced deals worth about USD 8.5 billion.
OVL has completed acquisition of Hess Corp's 2.7 per cent stake in Azerbaijan's largest oil field and an associated pipeline for USD 1 billion.

Last November, it announced a USD 5 billion purchase of ConocoPhillips's 8.4 percent stake in Kazakhstan's Kashagan project, touted as the biggest oil find since the 1960s when it was discovered in 2000. OVL is awaiting Kazaksthan government's approval for the deal.

US' Anadarko Petroleum, the operator of Rovuma-1 field, and Videocon had each launched an auction of their respective 10 per cent stakes in the Mozambique field earlier this year.

OVL-OIL bid for both Videocon and Anadarko's stakes. A deal was struck with Videocon and the duo are advanced stage of negotiations to buy Anadarko's 10 per cent stake. That deal, sources say, too may be announced in coming weeks.
The transaction was first announced by ONGC on June 10 and withdrawn the same day for being "premature".

Mozambique may hold 250 Tcf of gas reserves and OVL-OIL deal follows China National Petroleum Corp buying a 20 per cent stake in another block in the Rovuma area for USD 4.2 billion from Italy's Eni.

"The Area 1 LNG project is strategically located to supply LNG to India at a competitive price. Participation of OVL and OIL in the project will facilitate access of LNG to the growing Indian gas market," OVL statement said.

"OVL and OIL will need to devote significant funding and technical resources to the development of the project, which will also enhance the strong business and cultural links between Mozambique and India," it said.

Area 1 covers about 2.6 million acres in the deep-water Rovuma Basin offshore Mozambique and represents the largest gas discovery offshore East Africa with estimated recoverable reserves of 35-65 Tcf. The gas found in Offshore Area 1 is to be turned into liquefied natural gas (LNG) and shipped to markets like India.

Anadarko Petroleum is the operator of Area-1 with 36.5 per cent while Videocon and a unit of rat Petroleum Corp Ltd (BPCL) hold 10 per cent stake each. Japan's Mitsui & Co Ltd is the second-biggest stakeholder with a 20 per cent interest.

Thai state oil company PTT Exploration and Production PCL has 8.5 per cent interest and Mozambique's state-owned ENH 15 per cent. OVL said the acquisition would mark its entry into the emerging world-class offshore gas basin with significant future upside potential.

"The acquisition would increase OVL's reserve and resource base resulting in a step further towards India's energy security," the statement said adding the project would help it attain the long-term production targets of 20 million tonnes of oil and oil equivalent gas from overseas projects by FY'18 and 60 million tons by FY'30.

"Considering the growing importance of natural gas in the primary energy basket, this acquisition is a significant step by OVL/ONGC group towards the energy security of our country," OVL Chairman Sudhir Vasudeva said.

For OVL, Bank of America Merrill Lynch was the financial adviser, Simmons & Simmons legal adviser, Ernst & Young tax and accounting adviser and Robertson (UK) Ltd – a CGG company, technical adviser.

Morgan Stanley was the financial adviser for OIL, Halliburton technical consultants, Ernst & Young tax and accounting adviser, Simmons & Simmons legal adviser.
Announcing deal with OVL and OIL, Videocon Director Kuldeep Drabu said Videocon would "continue to explore more opportunities in energy sector elsewhere in pursuant to its corporate objective and strategy to remain actively invested in E&P activities worldwide."

For the deal, Videcon was advised by Standard Chartered Bank, Credit Suisse and UBS as joint financial advisers and Amarchand & Mangaldas and Suresh A. Shroff & Co as legal adviser. PricewaterhouseCoopers, Mozambique also advised it on the transaction.

Shares of ONGC were trading 3.51 per cent up at Rs 309.35. Scrips of OIL were trading at Rs 542.90 apiece, down 2.34 per cent on the BSE.

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