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Indian Group to Pay $2.5 Billion for Mozambique Field Stake

Oil & Natural Gas Corp. (ONGC) and Oil India Ltd. (OINL), India’s biggest state-run explorers, will pay $2.5 billion to buy a stake in a Mozambique natural gas field from Videocon Industries Ltd. (VCLF)

The two Indian explorers will buy Videocon Mozambique Rovuma 1 Ltd., which owns 10 percent in the Rovuma-1 field in the waters off the African nation, ONGC said today in an e-mailed statement. The transaction is expected to close in the last quarter of 2013.

ONGC has announced $8.5 billion of oil and gas acquisitions outside India since September as it seeks to raise overseas production more than sixfold by 2030 and cut the south Asian nation’s dependence on imports. It plans to spend 11 trillion rupees ($189 billion) by 2030 to add reserves in India and overseas and reverse a decline in output from aging fields at home.

“There’s a huge gas demand and supply gap in India and its increasing,” said Bhavesh Chauhan, a Mumbai-based analyst with Angel Broking Ltd., who has a buy rating on ONGC shares. “India’s state-run companies will go wherever there’s gas for sale. The LNG from Mozambique can quite easily be brought to India.”

The Indian group will form a new venture to acquire Videocon’s unit. ONGC Videsh Ltd., ONGC’s overseas unit, will hold 60 percent of the venture and Oil India 40 percent, according to the statement. The acquisition is subject to the approval of both governments, regulatory permissions and pre-emption rights by existing partners in the Rovuma-1 area.

ONGC shares rose 0.6 percent to 321.05 rupees, while Oil India fell 1.1 percent to 566.95 rupees at the close in Mumbai. ONGC has gained 20 percent this year, compared with a 0.1 percent advance in the benchmark S&P BSE Sensex (SENSEX) index.

Top Destination

Mozambique has become one of the world’s top destinations for energy investment as companies including Anadarko Petroleum Corp. (APC) and Eni SpA (ENI) seek partners to develop the country’s offshore gas reserves. The African nation may have 250 trillion cubic feet of gas reserves, according to Empresa Nacional de Hidrocarbonetos, Mozambiques state-run oil company. That’s equivalent to more than two years of the world’s natural gas consumption.

China National Petroleum Corp., China’s largest oil producer, earlier this year agreed to buy a 20 percent stake in another block in the Rovuma area for $4.2 billion from Eni.

Convert Gas

Anadarko and Eni plan to convert gas from the Indian Ocean fields in Mozambique to liquid and transport it to countries including India. Liquefied natural gas plants need billions of dollars in investment to chill the gas to a liquid and ship it using tankers.

At a planned capacity of 20 million tons annually, the Mozambique project could be the world’s second-largest LNG export site after Ras Laffan in Qatar, where Exxon Mobil Corp. (XOM) is a partner.

“The Area 1 LNG project is strategically located to supply LNG to India at a competitive price,” ONGC said in the statement. “Participation of ONGC Videsh and Oil India in the project will facilitate access of LNG to the growing Indian gas market.”

Rovuma-1 has the potential to become one of the world’s largest LNG producing areas by 2018, according to the statement.

Anadarko Petroleum is the operator of the block with 36.5 percent stake in the block. Japan’s Mitsui & Co. owns 20 percent, Indian refiner Bharat Petroleum Corp. (BPCL) has 10 percent, Thailand’s PTT Exploration and Production Pcl owns 8.5 percent and Empresa Nacional de Hidrocarbonetos 15 percent, according to Anadarko’s website.

Combined Stake

ONGC and Oil India’s acquisition today will give Indian state-run companies a combined 20 percent stake.

Asian companies from China to India are striking deals around the world as local oil and gas production is unable to keep up with growing demand.

India’s energy demand is forecast to rise 14 percent by 2015 to 27.8 quadrillion British thermal units from 2011 levels, according to data from the U.S. Energy Information Administration. China’s may rise 16 percent in the period.

In March, ONGC completed the acquisition of Hess Corp. (HES)’s 2.7 percent stake in Azerbaijan’s largest oil field and an associated pipeline for $1 billion. In November, it announced a $5 billion purchase of ConocoPhillips (COP)’s 8.4 percent stake in Kazakhstan’s Kashagan project, touted as the biggest oil find since the 1960s when it was discovered in 2000.

The company is still awaiting the Kazaksthan government’s approval for the deal.

To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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