Energy hungry India closing in on Caspian fields

By bne IntelliNews November 27, 2012

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India's Oil & Natural Gas Corp. (ONGC) is close to acquiring an 8.4% stake in Kazakhstan's giant Kashagan project for around $5bn as it expands its presence in the oil rich Caspian. The Indian company has already agreed to buy into the Azeri-Chirag-Guneshili field and is now also considering investments in Turkmenistan.

ONGC is expected to close the deal to buy ConocoPhilips' 8.4% stake in Kashagan in the first half of 2013. The US company announced on November 26 that it has notified the Kazakh government and its partners of its intent to sell its interest in the North Caspian Sea Production Sharing Agreement.

"Although the news was to some extent expected, the specific timing and partner were not known. We believe any deal unlikely to affect the development of [Kashagan's] Phase I development and the targeted production start in 2013," Visor Capital analysts write. "The most interesting effect is likely to be watching whether the government or other consortium partners also choose to exercise pre-emption rights."

The existing members of the consortium - which also includes Shell, ExxonMobil, Eni, Total, Inpex, and state-owned KazMunaiGas - have the right of first refusal on the ConocoPhillips' stake, and have 60 days to exercise those rights should they decide to prevent the sale, according to Reuters. Just such an event occurred in 2003, when two Chinese companies, CNOOC and Sinopec attempted to buy a stake. The deal was blocked, with the Kazakh government taking half of the shares of former partner BG Group, with the remainder shared between the other consortium members.

However, as the start of production approaches, the difficulties the consortium have experienced in recent years make it less likely its members will try to block the deal to take a bigger stake for themselves, although that can't be ruled out. In addition, Chinese ownership of Kazakhstan's natural resources has become a hot political issue, a hurdle that does not apply to ONGC.

Assuming it goes through then, the deal will give India's largest oil importer a stake in the world's largest hydrocarbons discovery of the last 30 years. The consortium developing the Caspian offshore field have said they expect commercial production to start in early 2013.

"The acquisition... bears a significant strategic importance to India in terms of contributing towards India's energy security," ONGC's international arm ONGC Videsh Limited (OVL) said in a press release. Under ONGC's long-term Perspective Plan-2030, the company envisages an increase in OVL's oil and gas production from 8.75 MMTOE (million metric tonnes of oil equivalent) in the 2012 financial year to 60 MMTOE by 2030. The deal to buy Kasahagan, said Chairman Sudhir Vasudeva, is "a major step towards achieving this goal".

At the same time, OVL is looking at investment opportunities in Turkmenistan's oil and gas sector to help boost that step. CEO Dinesh Sarraf told India's Business Recorder that the company is "very keen" to invest in the Turkmen exploration and production sector, in particular to develop natural gas reserves. "We have had few meetings with key people from the country. Their government delegation is likely to be here later this year," Sarraf said.

His announcement follows an invitation from Kakageldy Abdullaev, Turkmenistan's acting Minister of Oil & Gas to OVL and another Indian company, GAIL, to invest in Turkmenistan. The two countries are already working together on the planned Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline.

OVL is also pushing into Azerbaijan. It has agreed to buy out Hess Corp's 2.72% stake in the Caspian offshore Azeri-Chirag-Guneshli, as well as the same company's 2.36% stake in the Baku-Tbilisi-Ceyhan pipeline, in a $1bn deal. Hess announced on September 7 that the deal is subject to regulatory approval, and is expected to close in 2013. The following month, Sarraf announced that OVL would open a representative office in Baku, APA reports.

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