On 4 September 2015, Russia’s state owned company, Rosneft, announced that it has sold a 15% stake in a subsidiary company, Vankorneft, to India’s ONGC Videsh Limited (OVL).
Amit Bhandari, fellow for energy and environment studies at Gateway House, has been advocating that India’s public sector oil companies must take advantage of the decline in oil asset values abroad and lock-in energy prices. His articles on the topic include: Should ONGC buy Rosneft, De-risking rising oil prices and A plan for India’s energy independence.
Statement:
“OVL’s acquisition of a stake in Rosneft’s Vankorneft is an excellent move – it now has a 15% stake in a company that owns reserves equivalent to 4.5 billion barrels of oil and has an annual oil production of 22 million tons. In the last decade, OVL has spent a total of $22 billion on oil and gas assets, which have yielded a little over 8 million tons of oil and gas per year. This deal raises OVL’s production by 40% in one move, for a fraction of the money it has spent on other acquisitions.
As one of the largest importers of oil and gas, India can be a major market for Russia, especially now when there is an over-supply in the oil market. Russia is one of the largest producers and exporters of crude oil, natural gas and petroleum products – it needs to secure demand, particularly in the aftermath of the country’s face-off with the West over Ukraine, which is possibly leading some of its key customers to consider alternative suppliers of energy. This deal is also a logical extension of the Rosneft-Essar agreement concluded in July 2015, which was a similar attempt by Russia to secure demand.
The fall in petroleum prices over the past year has pushed down the values of oil and gas fields, and consequently the value of energy companies that own these fields, by 60-70% in many cases. This gives India a rare chance to acquire assets at low costs, and hedge its economy against future increases in energy prices. India has a real opportunity to lock in oil prices at $45-50 per barrel for the future as well, assuaging the constant concern of high prices of imported oil in India.
As the world’s fourth largest oil importer, India needs more deals like ONGC-Rosneft. ONGC can make such acquisitions because it has a large balance sheet and is almost debt-free – it continues to remain very profitable despite the drop in petroleum prices in the last six months.”