Oil’s Well

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Published: March 21, 2016 1:24:02 AM

The Rosneft deal gives India’s equity oil a huge boost, while the Russian oil co can now pay off debts

The deals totalling $4 billion that Oil India (OIL), Indian Oil Corporation (IOC) and Bharat PetroResources (BPRL) have signed with Russia’s largest crude oil producer, Rosneft, for oil & gas condensate production in East Siberia, should give a boost to India’s equity oil. Under the deal, OIL, IOC and BPRL will jointly acquire a 29.9% stake in Rosneft’s East Siberian field Taas-Yuryakh for $1.28 billion. The Indian consortium also signed a heads of agreement (HoA) for evaluation of acquisition of 23.9% stake in Vankorneft that runs the Vankor field in East Siberia. In addition, ONGC Videsh Ltd (OVL) which acquired a 15% stake in Vankorneft in September 2015 for $1.25 billion, signed a new MoU to acquire another 11%. If the last two deals fall in place, Indian companies would have a 49.9% stake in Vankor. For Rosneft, the deals mean money to pay off debts incurred in the $55-billion acquisition of TNK-BP.

Tass-Yuryakh’s and Vankor’s appeal lies in their production potential and location (close to key pipeline infrastructure that ships Russian crude to global markets). For Russia, the deal also brings in new financing for production in the region at a time when oil prices are low and sanctions over the conflict in Ukraine are restricting access to Western capital. The signing of the deal also stymies an attempt by China’s CNPC to get a 10% stake in Vankor. In another development, Rosneft has shown interest in acquiring a 49% stake in Essar Oil that owns the 400,000 bpd Vadinar refinery. The other attraction that Essar Oil offers is its plan to roll-out a network of 5,000 fuel retail outlets across India. That will provide Rosneft access to the growing Indian market. This deal works for both India and Russia.

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