* Company has been shedding non-core overseas assets
* Deal is largest overseas deal for ONGC
* Transaction seen closing first half of 2013
* ConocoPhillips shares down 0.5 percent
By Swetha Gopinath
Nov 26 ConocoPhillips is to sell its 8.4
percent stake in Kazakhstan oil field Kashagan for about $5
billion to Oil and Natural Gas Corp, a state-run
Indian group looking to boost production.
Kashagan, the world's biggest oilfield discovery since 1968,
holds an estimated 30 billion barrels of oil-in-place, of which
8 billion to 12 billion are potentially recoverable, with first
production expected next year. Start-up of the field has been
delayed since 2005 due to cost overruns and disputes with
authorities over taxes.
With ONGC's domestic output flat for years, India now buys
nearly 80 percent of its oil needs and is the world's
fourth-biggest oil importer.
ConocoPhillips, which has been shedding overseas assets to
cut debt and increase its investment in lower-cost domestic
shale oil and gas, said on Monday the book value of assets
related to its Kashagan interest was about $5.5 billion as of
Sept. 30, and it would take an after-tax impairment of about
$400 million. The deal was expected to close in the first half
Fadel Gheit, oil analyst at Oppenheimer, said ConocoPhillips
was cutting its losses by selling its stake.
"This project has been plagued by problems," said Gheit.
"All along it was poorly handled. It is over budget and behind
ONGC, India's fifth-biggest company by market value, has
been investing to maintain output from its old fields and has
capital spending plans of around 340 billion Indian rupees ($6.1
billion) this year and next. It is under pressure from the
government to meet rising demand.
With Indian state companies having often lost out to China
in bidding for global energy assets, the Kashagan acquisition is
the largest ever for ONGC. It is also the biggest outbound deal
from India since mobile phone operator Bharti Airtel
bought mobile phone operations in Africa for $9 billion in 2010
from Kuwait-based Zain.
ONGC Videsh, the arm of ONGC that invests overseas, said the
acquisition would likely add 1 million tonnes (20,000 barrels
per day) to its annual production over 25 years, with its share
of output significantly higher in later stages of development.
ONGC Videsh's production in the year to March was 8.7
The deal comes as India pushes to diversify crude supplies
away from Iran, which used to provide about 12 percent of the
country's 3.5 million bpd or so of imports before sales were hit
by western sanctions aimed at curbing Iran's nuclear ambitions.
It puts ONGC Videsh into what has been a fraught and
expensive partnership between Kazakhstan and some of the world's
biggest oil companies, which hope to use the departure of
ConocoPhillips to gain greater operating control and extend
their production-sharing agreements with the state beyond 2041.
Kazakhstan, home to 3 percent of the world's recoverable oil
reserves and the largest former Soviet oil producer after
Russia, has sought to revise deals struck with foreign energy
companies in the lean post-Soviet years.
ConocoPhillips, which has been disposing of non-core
overseas assets to cut debt and increase its exploration and
dividend budgets, has already beaten its target of asset sales
worth $20 billion by the end of 2012, including the sale of its
stake in Lukoil, Russia's second-biggest oil producer.
Last month, Kazakh oil and gas minister Sauat Mynbayev said
ConocoPhillips planned to sell its stake.
ONGC was also said to be one of a trio of Indian companies
that had bid $5 billion for stakes in six of ConocoPhillips'
Canadian oil sands assets, which the Houston-based oil major put
on the block early this year.
ConocoPhillips is still evaluating bids for the assets
following "substantial" interest, said Rob Evans, spokesman for
the company's Canadian operations.
That asset package includes and interest the producing
Surmont project, run in a joint venture with France's Total SA
, and undeveloped leases.
The ONGC deal is subject to government approvals as well as
the pre-emption rights of Kazakhstan and other participants in
the Kashagan field which is jointly controlled by state-run
KazMunaiGas and six international companies, including Eni
, ExxonMobil, Inpex Corp, Royal Dutch
Shell, and Total.
It is unlikely that Exxon or Shell would exercise their
right of first refusal, citing the project's ongoing problems,
Oppenheimer's Gheit said.
"I'm not sure you want more of a bitter pill," Gheit said.
ConocoPhillips stock was down 0.5 percent at $56.42 in
midday New York Stock Exchange trading.