ONGC Videsh Ltd (OVL) on Monday (June 10) announced that, in
partnership with Oil India Ltd (OIL) , it had finalized a deal to buy out Videocon's 10 per cent stake in the Rovuma 1 offshore block in Mozambique, only to hastily withdraw the announcement within hours.
This led to furious speculation that the deal - known to have been in the offing - had fallen through at the last moment, until an ONGC spokesperson clarified that this was not so. The announcement was withdrawn only because it had been made too early. The details of the deal, clearly delineated in the press release, ought to have been revealed only after the formal signing, which will take place later this week.
"The deal is safe, the leadership teams of OVL, OIL and Videocon have agreed on it, but it has not yet been formally signed," the ONGC spokesperson said. He termed the earlier announcement a "human error".
Among the details revealed by the withdrawn OVL press release was that OVL and OIL would hold 60 per cent and 40 per cent stake respectively in the venture. The agreement will be subject to regulatory approvals, pre-emption rights and other customary conditions.
The area in which Videocon is selling its 10 per cent stake comprises 2.6 million acres in the
deep-water Rovuma Basin off the Mozambique coast . It is the largest gas discovery in offshore East Africa, with estimated reserves of 35 to 65 trillion cubic feet (TCF) of gas. Other partners in the venture include leading global oil and gas companies such as Anadarko Petroleum Corp, the operator of the project, ENH, Mitsui, BPCL and PTTEP. Known as 'Area 1', this spot has the potential to become one of the world's largest LNG producing hubs by 2018.
The withdrawn press release noted that the project was strategically located to supply liquefied natural gas to India at a competitive price. It added that the participation of OVL and OIL in the project would facilitate India's access. However, it said,
OVL and OIL would have to devote considerable funds and technical resources to develop the project. The deal would also strengthen business links between Mozambique and India.
The acquisition is consistent with OVL's strategic objective of adding high quality international assets to its existing exploration and production portfolio. The release said it would increase OVL's reserves and resource base, as also strengthen India's energy security.
"Considering the growing importance of natural gas in the primary energy basket, this acquisition is a significant step by OVL/ONGC towards ensuring the energy security of our country," the initial release quoted Sudhir Vasudeva, Chairman, OVL as saying.
The speculation about the deal having fallen through arose mainly because of the sudden slide of the Indian rupee against the US dollar through May and June. In the last week itself, it has fallen by about two per cent. But T.K. Ananth Kumar, Director, Finance at OIL insisted this would not affect OVL-OIL's decision. "We are planning to raise debt in dollars from foreign institutions. The deal is also being negotiated in dollars," he said. He added that the consortium was in touch with several global financial institutions globally, which were interested in financing the deal.
Initially, Videocon had sought $3 billion for its 10 per cent stake, an official privy to the negotiations revealed, but the deal was finally sealed at $2.48 billion - the figure mentioned in the withdrawn press release. In 2012, when Thailand based global oil and gas company, PTTEP acquired Cove Energy's 8.5 per cent stake in the same consortium, it had valued Videocon's stake in the block at $2.25 billion. Since then, however, there have been further discoveries. Indeed, analysts feel the difference between PTTEP's valuation and what OVL-OIL have agreed to pay, $230 million, is too low, which suggests OVL-OIL have got a good bargain.
The difference is low but is not surprising. Much has changed in the past year in the global gas market, said Girish Shirodkar, Managing Partner at the US based Strategic Decisions Group's India chapter. He noted that LNG prices have been coming down, with US shale gas coming into use. Many Australian projects have already been revalued. "In last one year profitability has also come down in the gas business," he added. "This could be a reason for the valuation not going up much despite the announcements of discoveries."
"In negotiations, the principle is that you give some and take some. It is not mandatory that you must get whatever you demand," said Ananth Kumar of OIL.
Attempts to contact Videocon owners, Venugopal Dhoot and Sourabh Dhoot, failed.
"Right now I cannot say anything. There are serious legal implications. We will come out with details once we reach closure," said DK Sarraf, Managing Director, OVL. "This was a human error, nothing more should be attributed to it."
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