L N Mittal opts out of Kazakh oil field JV with ONGC

Mittal Investment Sarl, the holding company of Mittal family, had used the Kazakh government to muscle its way into the Satpayev oilfield in the Caspian Sea where ONGC Videsh Ltd was shortlisted for a stake. However, just on the eve of signing an agreement for the field, MI decided to pullout, sources in know of the development said.

OVL which had in 2007 relented to the Kazakh condition of getting Mittal in the highly prospective field, has written to Almaty, saying the 25 per cent stake in Satpayev would now be acquired by it and not by ONGC-Mittal Energy Ltd - the joint venture it had with Mittal.
Sources said Mittal, which had dumped OVL when in April 2007 it acquired 50 per cent stake in Caspian Investments Resources (CIR) from Russian oil firm LUKoil for USD 980 million, is now looking at selling its interest in the firm.

CIR acquisition was originally to be done by OMEL but the India-born billionaire went ahead on his own citing opposition to OMEL from Lukoil.
Mittal now wants to exit from all of the oil and gas projects in Kazakhstan.

While ONGC Chairman R S Sharma declined comments, MI did not immediately offer any comments.

Sources said Mittal offered the stake in CIR to OVL, which declined it, apparently because it thought the company was a sinking ship with oil production falling and actual reserves not matching the announced ones.
Mittal is now looking for buyers including those in China for its stake in CIR. LUKoil, which holds the remaining stake in CIR, may be a potential buyer.

Sources said OVL had anticipated that Mittal may not continue with Satpayev and so, a few months back, had sought specific permission from the Cabinet for going ahead with investing the entire USD 400 million in the field on its own.

The board of OVL, the overseas arm of ONGC, met on November 17 and decided to write to the Kazakh government on Satpayev. Kazakh national oil firm KazMunaiGas will be the operator of the field, holding remaining 75 per cent stake. An Exploration and Production Contract would be signed soon.
The Satpayev block, situated in the Pre-Caspian Basin of Kazakhstan in Caspian Sea, covers an area of 1,582 sq.km.
OMEL, now OVL, is to pay USD 26 million as signing amount to the Kazakhstan government for 25 per cent stake in Satpayev field. Besides, it would also pay USD 80 million as one-time assignment fee. Over and above these, it has committed a minimum exploration investment of USD 165 million and an additional optional exploration expenditure of USD 235 million.

Satpayev is situated in highly prospective region of 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 tons of reserves in the field.

Kazakhstan had initially identified the Satpayev and Makhambet blocks in the Caspian Sea for giving 50 per cent stake in one of them to OVL. Later, it reduced the stake on offer to 25 per cent on 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.

Caspian Investments Resources (CIR) acquisition was originally to be done by ONGC Mittal Energy Ltd (OMEL), the equal joint venture of OVL and Mittal Investment, but the India-born billionaire went ahead on his own citing opposition to OMEL from LUKoil.

CIR owns Nelson Resources, which LUKoil purchased for USD two billion in 2005. Nelson carries out oil and gas production projects in Kazakhstan. CIR has oil production assets in the Kazakh oilfields of Alibekmola, Kozhasai, Severnye Buzachi, Karakuduk and Arman.
The current production from the fields, which is stated to have total proven reserves of some 270 million barrels, is less than 40,000 barrels per day and is falling.