On September 4, Russia’s state owned oil company Rosneft announced the sale of a 15% stake in a subsidiary company, Vankorneft, to India’s ONGC Videsh Limited. The value of this stake hasn’t been made public, but media reports suggest that ONGC paid $1.25 billion for it. This deal leads the way for India’s energy independence – a once-in-a-generation opportunity to lock in the price of imported energy at its current low levels. From the Russian side, this deal helps Russia to gain access to a major energy market at a time when there is an over-supply in the oil industry. It is also a logical continuation of the Rosneft-Essar deal of July 2015, deepening a new Russian energy engagement with India.
This acquisition is an excellent move by ONGC. India imports almost 3.8 million barrels of oil per day, but Russia provides less than 0.25% of it. The PSU gets a stake in a company with over 4.5 billion barrels of oil reserves and an annual oil production of 22 million tonnes. Prior to the current stake purchase, ONGC Videsh had spent a total of $22 billion on oil and gas assets worldwide in the past decade, from which it derives a little over 8 million tonnes of oil and gas for the home market. This deal increases ONGC Videsh’s production by 40% in one go – for a fraction of the cost it has spent on other acquisitions in places such as Russia, Mozambique and Venezuela.
For India, this is the way forward. Because of the fall in petroleum prices over the past year, the value of most energy companies and their oil and gas fields have fallen by 60%-70%. As the world’s fourth largest oil importer, India needs more such purchases, which will begin to really pay returns when oil prices move upward again.
ONGC is well placed to lead the march because of its strong balance sheet which is almost debt free. Other public sector oil companies particularly BPCL, HPCL and Indian Oil must now follow ONGC into the acquisition arena. Only then can India compete with China on energy security through acquisitions.
Amit Bhandari is Fellow, Energy & Environment Studies, Gateway House.
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