India’s quest for energy security continues.
By Rajiv Theodore
NEW DELHI: The discovery in recent years of tremendous amounts of recoverable natural gas in the deep waters of the Indian Ocean off Mozambique’s coast has drawn billions of dollars of investment from state-run and private companies in the large fuel-hungry emerging nations of Asia.
Securing energy has remained a top priority for the Indian government and in this quest the state-owned ONGC-Videsh (OVL) is gearing up to pay $2.64 billion in cash for a 10 % minority stake in a natural gas project in Mozambique.
OVL, which is the overseas arm of Oil and Natural Gas Limited (ONGC), would be acquiring the stake of Mozambique’s Offshore Area 1 from the Texas based firm Anadarko Petroleum. The New York Stock Exchange listed Anadarko would retain 26.5 percent and remain the operator of the project which includes investments from slew of international firms from Japan, Thailand and India including Mozambique’s state oil company.
“Area 1 has potential to become one of the world’s largest L.N.G. projects,” ONGC chief Sudhir Vasudeva said in a statement on Monday. The deal, he said is a significant step “towards the energy security of our country.”
Bank of America Merrill Lynch advised ONGC Videsh while Citi was the sell-side advisor for Anadarko. The transaction is expected to close around the end of this year, subject to government approvals. Simmons & Simmons is the legal adviser.
Area 1 covers about 2.6 million acres, or 1 million hectares, of ocean floor and contains estimated recoverable reserves of 35 trillion to 65 trillion cubic feet of natural gas, according to Andarko. Investors expect that the first shipments of liquefied natural gas from the project will begin by 2018.
Exploration and production of a separate block, known as Area 4, is being led by the Italian oil and gas company Eni. In March, China National Petroleum Corp., a state-owned company, agreed to pay $4.3 billion for a 20 percent stake in the Eni project, which is also being backed by the Mozambique state oil company Empresa Nacional de Hidrocarbonetos de Moçambique; Korea Gas of South Korea; and Galp Energia of Portugal.
“ONGC Videsh produced 7.26 million tons of oil and gas during the fiscal year ended March 2013,” said D.K. Sarraf, managing director and chief executive of ONGC Videsh in an interview with FinanceAsia last week. “We plan to increase production to 20 million tons of oil and gas within the next five years and to 60 million tons by 2030,” he added.
The deal has been struck at an interesting time for India. The Indian rupee has been rapidly depreciating amidst the government’s move to rein in capital outflows. Earlier this month, it limited the foreign direct investments of Indian companies at 100% of their net worth, down from 400% previously. Companies that want to make foreign investments in excess of 100% of their net worth require approvals to do so.
Clearly, however, securing energy remains a priority for the Indian government and its central bank exempted both state-owned oil companies – ONGC Videsh and Oil India – from the limits on foreign investment. Indian outbound M&A — which has chalked up $8.5 billion of announced deals this year — has largely been in the shadow of Chinese outbound M&A, which has amounted to $38.6 billion.
India and China are constantly hunting for oil resources as they are cautiously aware of increasingly strict U.S. and international sanctions on Iran due to its purported covert nuclear weapons program, which have left both nations seeking alternatives.
India, following China’s footsteps, has been foraying into the African continent for oil. It’s rising imports from west Africa has been threatened by the age-old scourge of piracy. Since 2012 oil imports from west African Gulf of Guinea countries nations have dipped as much as 16 percent due to rise in piracy in the region, official statistics show. Gulf of Guinea nations Ivory Coast, Ghana, Togo, Benin, Nigeria, Cameroon, Equatorial Guinea, Gabon, Congo and the northern stretch of Angola have seen a surge in reported attacks, from 32 in 2010 to 31 in the period January-June 2013.
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