The Telegraph
Monday , December 3 , 2012
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ONGC sets sights on Bangla blocks

New Delhi, Dec. 2: State-owned explorer ONGC Videsh Ltd (OVL) plans to bid for oil and gas blocks in Bangladesh even as concerns envelop its latest acquisition in Kazakhstan.

“We are keen to bid for the blocks on offer. They (Bangladesh) have shared (geological) data, which are being studied,” OVL managing director Dinesh K. Sarraf told The Telegraph.

Bangladesh will sell 12 oil and gas blocks in the Bay of Bengal, comprising nine shallow-water blocks and three deep-water blocks.

However, Sarraf said the deal to buy ConocoPhillips’s stake in the Kashagan oilfield in Kazakhstan might not go through if the other partners exercised their first right of refusal within 60 days.

Another worry is rating agency Moody’s views. It said the deal was credit negative for OVL’s parent, ONGC.

In Bangladesh, Sarraf indicated that the exploration firm would go for a pre-bid alliance and take a call on the number of blocks to bid on commercial considerations. He said, the “geographical location (of the blocks) would have a significant impact”.

Sources said ONGC Videsh was keen to partner global players who were present in the neighbouring country as well as Indian PSUs such as GAIL and Oil India. Equity partnership with domestic operators such as Bangladesh Petroleum Exploration & Production Company Limited was also a possibility.

Chevron (US), Santos Bangladesh (Australia), Tullow (Ireland) and Gazprom (Russia) are some of the global players in Bangladesh.

Kashagan worries

Sarraf said the other partners in Kashagan had 60 days to decide on the right of first refusal.

If one or more partners exercise their rights, they have to pay ConocoPhillips the same amount as OVL.

Italy’s Eni, Royal Dutch Shell, France’s Total, ExxonMobil of US and Kazakhstan’s KazMunayGas have 16.81 per cent stake each, while Inpex of Japan has 7.56 per cent. Conoco’s share is 8.4 per cent.

ExxonMobil and Shell have been seeking bigger stakes in the oilfield and operating control before starting on expansion. KazMunayGas, Kazakhstan’s national oil company, too, may be interested in the stake. Also, Kazakhstan has the right to deny approval of the deal.

The Kazakh government had blocked the 16.67 per cent stake sale of BG Group in the oilfield to two Chinese firms — CNOOC and Sinopec — in 2003, with the state-owned firm then taking half the stake and the other partners sharing the rest.

Analysts said ONGC Videsh was unlikely to face such an opposition from the Kazakh government considering the friendly relations between New Delhi and Astana.

“We are confident of getting government approval within the 240-days-time limit for approval of the entire transaction,” Sarraf said.

Kashagan, the biggest world oilfield discovery since Alaska’s Prudhoe Bay in 1968, holds an estimated 30 billion barrels of oil reserves, of which 8-12 billion are potentially recoverable.

“The worst for the Kashagan field, including the delays, is behind everyone. The future of this really large field is good. We’re fully prepared to participate in the field, including expansion,” he said.

Moody’s has said the acquisition will be credit negative for ONGC as the state-owned firm’s debt will rise $5 billion.

“The acquisition will be funded with debt and will increase ONGC’s consolidated net debt by at least $5 billion, a credit negative,” it said.

ONGC has been struggling to generate positive free cash flows given its already high capital expenditure programme (about $7.5 billion in current year) and projected rise in its fuel subsidy outgo to Rs 60,000 crore from Rs 50,000 crore last year, it said.

“For the 12 months ended March 31, ONGC generated free cash flow of $145 million and had $3.2 billion of debt and nearly $5 billion of cash.

“We expect ONGC to increase its net borrowings by approximately $5 billion to fund this acquisition,” it said.

“The acquisition exposes ONGC to the project’s execution risk: there have been multiple delays and cost overruns over the past decade,” it said.