Oil India, OVL agree to buy stake in Mozambique gas field for $2.47 billion

Mumbai: State exploration firms ONGC and Oil IndiaBSE 2.23 % (OIL) have signed a $2.48-billion deal to acquire 10% stake from Videocon in a giant gas project in Mozambique, which may help ship an estimated 6 million tonnes a year of liquefied natural gas (LNG) to India.

ONGCBSE -0.18 % Videsh (OVL), the overseas arm of the state explorer, said the deal marks its entry into a world-class project with significant upside potential, and would help it achieve long-term production targets of 20 million tonnes of oil equivalent by 2018 and 60 million tonnes by 2030.

"Considering the growing importance of natural gas in the primary energy basket, this acquisition is a significant step by OVL/ONGC group towards the energy security of our country," said OVL Chairman Sudhir Vasudeva.

This is ONGC's third significant global acquisition since it bought Hess Corp's 2.7% stake in Azerbaijan's largest oil field and an associated pipeline for $1 billion. It also signed a deal to buy ConocoPhillips's 8.4% stake in Kazakhstan's Kashagan project for $5 billion last November, but the deal is facing obstacles from China.

Oil India officials said gas from the project would be shipped to India. "Gas production from the Rovuma basin should commence by 2018 with an initial production of 10 million tonnes per annum, which will go up to around 30 mtpa by 2024. So, with our 10% stake now and Bharat Petroleum's 10% stake in the basin, we can easily ship close to 6 mtpa to India," said Oil India CFO T Ananth Kumar.

"Over the next five years, we will be investing an additional $2.5 billion in this project as we will also be partnering in the upcoming LNG infrastructure," he said.

He also said that Oil India will be borrowing abroad to fund this acquisition, "We will be raising around $800 million of the total $1 billion that we will be investing from overseas investors and will exercise the external commercial borrowing option and also launch an overseas bond issue," he added.

"We are satisfied with this valuation, as in the Mozambique energy asset our entire business model was to build value and exit, but this does not mean that we will exit our Brazil assets also. Decision to use this cash to retire our debt will be taken shortly by our advisors Standard Chartered Bank," said VideoconBSE 5.30 % Industries CMD Venugopal Dhoot.

Bankers involved in the transaction lauded the deal. "This is a great transaction and reinforces Videocon's track record of investing in world-class assets across Ravva, Brazil and East Africa. For OVL and OIL, this provides an entry into a very strategic asset," said Gaurav Mehta, Executive Director, UBS, Videocon's Advisor.

"From a logistics point of view, we are the most natural home market for this gas, and that suits the energy security objective of the Indian consortium," said Raj Balakrishnan, head of M&A at Bank of America Merrill Lynch, which advised OVL.