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India's ONGC expands Russian footprint

The Oil and Natural Gas Corporation has taken a 15% stake in the Vankor oilfield

India’s Oil and Natural Gas Corporation (ONGC) has taken a 15% stake in Rosneft’s prolific Vankor oilfield as part of its accelerating global expansion drive.

The sale price has not been officially announced, but local media reports peg the deal at between $1.275bn and $1.35bn for the East Siberian field, Russia’s biggest discovery in the past 25 years, and smaller clusters.

It will be ONGC’s third major investment in Russia’s upstream, after Sakhalin-1, largely considered a success, and its acquisition of Imperial Energy, purchased when oil prices were at a peak, and widely seen as a failure, said Abhishek Agarwal, an India-focused energy analyst at investment bank Macquarie. Given the timing of the latest investment, when oil prices are weak, analysts view this as a long-term strategic move to bolster India’s energy security.

India, which imports most of its oil, is set to overtake China as the largest source of growth in global oil demand by 2020, data from the International Energy Agency show. To help meet this expected demand ONGC has planned an aggressive $180bn global investment push to take on Chinese rivals and drive foreign production up sevenfold by 2030.

Vankor is one of the jewels in Rosneft’s crown, producing 22m tonnes of oil last year. Still, the deal price announced in the news flow is below Moscow-based VTB Capital’s estimate of $1.5bn to $1.8bn for 15% of the Vankor cluster, signaling that ONGC might have used the Russian firm’s urgent need for capital to secure a good price.

Struggling with hefty debts and lower oil prices and barred by sanctions from raising fresh funds in western capital markets, Russia’s state-backed oil companies have been courting Asian investors. China’s CNPC is also in talks to take a 10% stake in the Vankor fields.

Production at the field averages 442,000 barrels/day of oil. ONGC’s share will be 66,000 b/d. ONGC is expected to get two board seats and oil dividends but no control over output, which would have required a 25% stake, said Agarwal. The deal should be tied up by March 2016.

Vankor, launched by Rosneft in August 2009, is Russia's northernmost onshore oil project. It is part of Russia's push to tap new, challenging regions, such as the Arctic offshore and East Siberia as oil deposits in West Siberia, the heartland of the country’s oil production, are gradually depleted.

Production at Vankor, which had initial recoverable reserves of 500m tonnes of oil and condensate, plus 182bn cubic metres of gas, has been complicated by harsh climate, with winter temperatures falling as low as minus 60 Celsius.

The nearby cluster fields, Suzun, Tagul and Lodochnoye, will be launched within the next few years with Suzun expected to start production by the end of next year. The three fields hold 395m tonnes of initial in-place oil and condensate reserves.

Rosneft originally planned for Vankor to reach peak output of 25m tonnes/ year (500,000 b/d) in 2013. It will now do so in 2019 – and only with the help of the nearby fields acquired with the $55bn takeover of TNK-BP two years ago.

Meanwhile, ONGC is not the only Asian NOC taking an interest in Russia’s energy sector. During a recent visit to Beijing, Russian president Vladimir Putin announced a package of deals with Chinese state-backed companies to help develop Russia’s eastern regions.

Rosneft and Sinopec agreed to jointly develop Russkoye and Yurubcheno-Tokhomskoye, two of Rosneft’s fields in Siberia. Under the preliminary deal, Sinopec has the right to buy a 49% stake in the exploration licences. ONGC has also been in talks with Rosneft over the Yurubcheno-Tokhomskoye field. Sinopec also preliminarily agreed to take an interest in Sibur, Russia’s largest petrochemicals company.

ChemChina Petrochemical Corporation signed an initial agreement with Rosneft to buy 51% of the Far Eastern Petrochemical Company in early September.

Private Russian gas producer Novatek also sealed a long-awaited Chinese capital injection as Beijing’s state-controlled Silk Road Fund agreed to buy a 9.9% interest in the Yamal LNG export scheme, whose shareholders include French major Total and China’s CNPC.

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