ONGC to pip China Petro in $6-bn deal

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New Delhi, Feb 8: India is set to pip China with Oil and Natural Gas Corporation (ONGC) close to striking a $6-billion deal with Russian oil major Rosneft for a 15% stake in Yugansk oil field. This will be India’s biggest overseas investment ever in any sector.

Rosneft is the new owner of Yugansk and also partners ONGC Videsh Limited (OVL) in Sakhalin-I in Russia. Following this deal, ONGC’s investment in Russia would cross the $10-billion mark.

A 15% equity in Yugansk will give ONGC a crude oil entitlement of 1.65 billion barrels, which is 45% of ONGC’s proven oil reserves of about 3.7 billion barrels. Yugansk reserves are estimated at over 11.60 billion barrels.

On an annual basis, ONGC would be entitled to about 7.5 million tons of oil every year from the Yugansk field. It is also negotiating with Rosneft to be the principal off-taker for the additional Yugansk crude. The final deal will be executed by OVL, with necessary funding support from ONGC.

Under the deal, OVL will extend $6 billion to Rosneft in the form of a loan. While a bulk of this would be adjusted against the 15% equity ONGC acquires in Yugansk, the balance amount will be converted into a long-term loan with repayment of over 9-11 years.

“The exact amount required to pick up 15% equity by ONGC will be decided after the company carries out a detailed valuation of the Yugansk oil field,” a senior ONGC official said.

While the external affairs ministry has termed the investment as “politically desirable”, the finance ministry has asked OVL to try and obtain a letter of comfort from the Russian government as sovereign guarantee would be difficult to obtain. The deal has now been approved by the empowered committee of secretaries.

ONGC proposes to raise $ 6 billion initially through a bridge loan.

Later, this would be replaced through appropriate financing mechanism including securitising OVL’s crude/gas off-take entitlements.

ONGC has already initiated talks with the Reserve Bank of India and State Bank of India for direct remittance of foreign currency funds. In the long term, ONGC plans to restrict its exposure to 15-20% and raise the balance from external agencies.

Incidentally, Rosneft had made a similar proposal to China’s CNPC with an offer to give 20% in Yugansk. OVL has informed the government that Russia would prefer the Indian proposal given that Rosneft and OVL are already partners in the Sakhalin-I project.