ONGC (ONGC) Videsh Ltd., a unit of India’s biggest energy explorer, will probably raise debt overseas to fund its entire $2.64 billion purchase of a 10 percent stake in a Mozambique gas field from Anadarko Petroleum Corp. (APC)
“It’s a project where earnings will be in dollars, spending in dollars and hence we want the liabilities to be in dollars as well,” ONGC Videsh Managing Director D.K. Sarraf said in an interview. “The impact of the dollar funding could help avoid the impact of a fluctuating rupee.”
ONGC is leading India’s push to get access to oil and natural gas reserves around the world with $6.14 billion of deals this year as a growing population and industrialization drives up energy demand in Asia’s third-biggest economy. Funding the acquisition with overseas debt will help ONGC skirt the effect of a sinking rupee, which has dropped 14.17 percent this year, the worst decline among its Asian peers.
The acquisition, subject to approvals in Mozambique and India, will add to Oil & Natural Gas Corp.’s interest in Rovuma Area 1, after it joined with Oil India Ltd. (OINL) in June to buy a 10 percent stake for $2.5 billion from Videocon Industries Ltd. (VCLF) State-run Bharat Petroleum Corp. owns 10 percent stake in the field, taking Indian ownership to 30 percent, the biggest group.
“The valuation is fair and there’s synergy as the Indian group will control a large part of the field and can bring some of the gas back home,” said Gagan Dixit, a Mumbai-based analyst with Quant Broking Pvt., who has a buy rating on ONGC. “India could become Mozambique’s biggest market for its gas.”
ONGC fell 3.1 percent to 268.05 rupees in Mumbai today, the biggest decline in a week. The shares are little changed this year, compared with a 4.5 percent drop in the benchmark S&P BSE Sensex. (SENSEX) Anadarko rose 0.6 percent to $89.80 in New York on Aug. 23, taking its gain for the year to 21 percent.
Bank of America Merrill Lynch was ONGC’s financial adviser.
The field will supply gas to a liquefaction plant that “is strategically located to supply LNG to India at a competitive price,” ONGC said today in statement. The New Delhi-based company and its units plan to spend 11 trillion rupees ($171 billion) by 2030 to add reserves in India and overseas and reverse a drop in output from aging fields at home.
“The acquisition is strategic because it give us access to a lot of LNG which can be brought to India,” Sarraf said. “It’s a big step toward India’s energy security.”
The Rovuma Area 1 has the potential to become one of the world’s largest LNG projects, ONGC said in the statement. At a planned capacity of 20 million tons annually, the Mozambique project could be the world’s largest LNG export site after Ras Laffan in Qatar, where Exxon Mobil Corp. (XOM) is a partner.
Anadarko, which will remain the operator of Area 1 with a 26.5 percent stake, said the deal “values our pre-transaction interest at more than $9.6 billion,” according to a separate statement from The Woodlands, Texas, based company. The company will use cash from the sale to boost development at its U.S. onshore projects as well as the Gulf of Mexico, according to the statement.
Anadarko and Eni SpA (ENI) have been leading efforts to convert gas from the Indian Ocean fields in Mozambique to liquid and transport it to nations including India via tankers. Liquefied natural gas plants need billions of dollars in investment to chill the gas to a liquid and ship it using tankers.
The East African country has become a prominent destination for energy investment, especially by Asian companies, as it looks to develop the largest natural-gas discovery in a decade.
The scale of the reserves means significant spending by the blocks’ owners will be needed to construct export infrastructure. Building the necessary rigs, pipelines and export terminals could require $50 billion in investment, Mozambique’s mining minister said last year.
The east African country, with a per capita gross domestic product lower than that of Rwanda, has limited experience managing large-scale resource projects and is still building key ports and railway links. Rio Tinto Group (RIO) earlier this year wrote down 70 percent of its investment in Mozambique’s coal sector because of insufficient transport capacity and a drop in coal prices.
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