By Jo Winterbottom
NEW DELHI Dec 3 Faced with soaring demand,
stagnant output at home and a need to diversify from Iranian
crude imports lost to Western sanctions, Indian oil companies
are hungry for deals like ONGC's Kashagan buy that promise
supplies sooner rather than later.
State-run ONGC Videsh has agreed to pay about $5 billion for
8.4 percent of the Kashagan field in Kazakhstan, the world's
largest oilfield discovery in four decades - which could boost
its output by about 16 percent within a year.
The deal adds to a stable of assets that span some of the
trickiest territories in the world - Sudan, Iran, Iraq, Syria
and Libya among them - accumulated as parent Oil and Natural Gas
Corporation (ONGC) struggled with domestic output.
But it's a drop in the ocean for the world's fourth-biggest
crude importer - it buys in 3.5 million barrels per day (bpd) -
where the energy gap triggers constant power cuts. Asia's
third-largest economy plans to hit 8 percent growth in 2014/15
and by 2030 that could lift it to be third-largest in the world
and also the No. 3 energy consumer, according to BP.
Oil supplies have become more urgent as Western sanctions
over nuclear projects squeeze Iran, once India's second-biggest
supplier. India's imports from Tehran slipped by nearly a fifth
to 257,000 bpd in April-September.
"Our priority is to look for discovered, developed and
producing assets which give us production growth immediately,"
T.K. Anantha Kumar, head of finance for Oil India, the
country's other state-run explorer, told Reuters.
While not all the oil bought overseas turns up in domestic
refineries, it can give companies a stake in the global crude
trade, enhancing their flexibility for supplies and potentially
ONGC Videsh said in its 2011/12 annual report that its tough
production targets - 20 million tonnes of oil equivalent by
2017/18 and 60 million tonnes by 2029/30 - mean it "needs to
concentrate on acquiring assets in (the) development and
production phase initially" before looking at exploration
Parent ONGC does not have a good track record in exploration
and was slated this year by the state auditor for focusing too
much on producing fields at home.
"Definitely we are looking at a good mix of producing as
well as exploration assets because we want to increase our
contribution" to India's energy security, an ONGC Videsh
official told Reuters on condition of anonymity.
Indian companies will face sharp competition for these
assets, however, from Asian rivals Japan and China - also major
clients of Iran and facing their own demand challenges, the
former because of nuclear power plant closures.
With all but two of Japan's reactors idled and the
government set on reducing reliance on atomic power after the
Fukushima disaster, Japan's energy explorers are on a quest for
upstream assets overseas, often with strong state support.
Should ONGC complete the purchase of the Kashagan stake -
ConocoPhillips' existing partners in the project have a
right of first refusal on it - it could be
working alongside Japan's biggest energy explorer, Inpex Corp
, which has a 7.56 percent share.
Chinese state oil companies CNOOC, Sinopec Group,
the parent of Sinopec Corp , and PetroChina
have been among the world's most
acquisitive oil firms in recent years. CNOOC has bid $15.1
billion for Canadian oil and gas producer Nexen, while
Sinopec recently paid $1.5 billion for UK North Sea assets and
$2.5 billion for a one-fifth stake in a Nigerian offshore field.
Asian companies may be willing to buy into countries where
the political situation deters Western buyers - reflected in the
spread of their portfolios. The Kashagan field has been plagued
by disputes with the Kazakh government and cost overruns.
"In some cases, the political context can inhibit
international oil companies from investing in a country where
Chinese and other Asian companies have jumped in," said Siddik
Bakir, Middle East and South Asia energy analyst at IHS World
Markets Energy in London, in an email.
Chinese companies, which have also suffered in Sudan and
Syria, are interested in investing in Myanmar and have often
leveraged government-to-government deals with developing or
politically risky countries where international majors can't or
don't bother to go.
More recently, both Chinese and Indian companies have turned
their attention to OECD countries such as Canada and the United
States, while maintaining their interest in the rich prospects
of Latin America and Africa. ONGC Videsh, for example, is
focusing on Africa and Latin America, its managing director,
D.K. Sarraf, said, after a policy shift last year away from
politically risky regions. Oil India is focused on North America
And while the search for fundamental energy supplies such as
oil, natural gas and coal continues, new sources such as oil
sands or shale deposits are taking centre stage.
Chinese companies have struck multi-billion dollar deals for
such assets in the United States, and an Indian consortium -
including ONGC and Oil India - is in the running for oil sands
properties in Canada.
ONGC Videsh "will need to be prepared to face more
international competition on a regional and global level,
particularly from Chinese companies," Bakir said.
"Indian state-run companies don't have a good track record
of competing and winning against Chinese companies in a bidding
scenario, especially when you have to write a cheque for more
than $5 billion," said a resources banker with a European bank
in Mumbai. "In those cases, Chinese companies will continue to
have an upper hand."
ONGC Videsh reckons it needs $20 billion to buy the assets
it needs up to 2030, while Oil India is looking to invest up to
$1.82 billion for assets that could give it an extra 1.5-1.75
million tonnes a year of oil.
But unlike Chinese companies which enjoy financial
independence, India's state-owned energy companies have not been
very successful in closing big overseas acquisitions, often
because of delays in securing government approvals at home.
They may be sitting on huge piles of cash, but New Delhi is
in no mood to throw money around at the moment with a fiscal
deficit big enough to threaten an expensive credit downgrade.