The two public sector oil and gas exploration companies on Tuesday signed an agreement with Videocon Mauritius Energy to acquire 100% stake in Videocon Mozambique Rovuma 1, the company holding a 10% participating interest in the Rovuma Area 1 block in Mozambique. OVL and OIL are also said to be looking to buy a further 10% stake from Anadarko of the US.
The acquisition is expected to be implemented through a newly incorporated special purpose vehicle jointly owned by OIL and OVL and will be completed in the fourth quarter of 2013. OVL will hold 60% stake in the joint venture while OIL will have the remaining 40%.
Rovuma Area 1 covers approximately 2.6 million acres in the deepwater Rovuma Basin and represents the largest gas discovery offshore East Africa with estimated recoverable resources between 35 and 65 trillion cubic feet (TCF) as per operators estimates. This is more than 10 times the reserves in Reliance Industries' eastern offshore KG-D6 fields.
"This acquisition is a significant step towards the energy security of our country," ONGC chairman Sudhir Vasudeva said in a statement on Tuesday. With domestic production of natural gas slipping, India is all set to become a net importer of gas in the next two years.
SP Garg, director of finance, OVL, said that the acquisition will be funded through a mix of overseas borrowings as well as internal accruals of the parent company. Rovuma Area 1 block is expected to start gas production from 2018. The block is strategically located to supply LNG to India's east coast also starting 2018, he said.
OIL chairman & managing director SK Srivastava said, "This acquisition is in line with our Strategic 2020-21 Plan which has a strong focus on inorganic growth across the energy value chain. It will also provide us with firsthand experience of setting up and operating a deep water natural gas field and LNG plant while further helping in addressing the growing energy requirements of our country.
TK Ananth Kumar, director of finance, OIL, said that from 2018 onwards the block is expected to start producing 10 mt of gas, of which 10% can potentially be transported as LNG to India. Apart from the acquisition price, OVL and OIL will have to pay their share of the field development cost and the LNG plant investments. This is expected to cost a total of around $15 bn and their share will come to $ 1.5 bn.
For Videocon, the deal represents a major profit on the $100 million it invested to buy the stake in Mozambique in 2008. Videocon has been looking to exit its stake in the Mozambique gas field since last year as its diversification from a consumer electronics maker to a multi-business group, centered on oil and gas exploration, has put a heavy debt burden on its balance sheet.
Videocon was expected to take a hit from new tax laws in Mozambique introduced at the start of the year, but Kuldeep Drabu, director Videocon, praised the investment climate in the southern African nation.
"(Videocon) is committed to continue to explore more investment opportunities in Mozambique," he said in a media statement. "Videocon shall also continue to explore more opportunities in the energy sector elsewhere pursuant to its corporate objective & strategy to remain actively invested in E&P activities worldwide," Drabu added.
Investors in Videocon, however, appeared to give a thumbs down to the deal, with the stock sliding 6% to close at R201.05 on Tuesday on the BSE.
The deal represents OVL's third major acquisition since September last year, on the heels of its $1- billion deal for Hess Corp's 2.7% stake in Azerbaijan's largest oil field and an associated pipeline and its $5-billion purchase of ConocoPhillips's 8.4% stake in Kazakhstan's Kashagan project, touted as the biggest oil find since the 1960s when it was discovered in 2000.
The other partners in Area 1 include Anadarko, operator of the project, ENH, Mitsui, BPRL and PTTEP. Earlier, on June 10, OVL had announced the acquisition but withdrew its statement after a few hours without citing any reason.
Recent discoveries at Mozambique's Rovuma offshore field have left several global players vying for a stake in the Basin. These finds have boosted Mozambique's gas reserves to around 150 trillion cubic feet, enough to supply world number-one LNG importer Japan for