ONGC and Sistema to merge their oil & gas businesses in Russia
NEW DELHI: State-run ONGC and Russian conglomerate Sistema have decided to merge their oil & gas businesses in Russia under a joint venture in a no-cash deal where the Indian firm will have a 25% shareholding with a say in management.
The merger of three companies, Bashneft, RussNeft and Imperial Energy, will make ONGC a shareholder in the Russian firms’ annual oil production of 25 million tonne and in the output of their refineries which have a capacity of 20 million tonnes besides discovered oil fields, Trebs and Titov.
State-run Indian Oil Corp (IOC), India’s largest refiner, will join ONGC in the venture, an oil ministry official said.
ONGC will merge its wholly-owned subsidiary Imperial Energy into the new company. ONGC Videsh, the foreign arm of the state-owned giant, India’s second-largest company by market capitalisation, had acquired Imperial in 2008 for $2.1 billion. Imperial produces about 1 million tonnes of crude oil annually and all its assets are in Russia.
Officials with direct knowledge of the matter said that ONGC would be practically managing oil and gas assets of the merged entity due to its experience. ONGC’s shares were down 0.26% at Rs 1,301.60 from the previous day’s close.
Sistema, a diversified group, had been scouting for a strategic partner with experience in oil and gas sector, ONGC’s chairman & managing director RS Sharma said in a statement. Sistema is a financial corporation that manages companies with a presence in telecommunication, high technology, energy, aerospace, banking, retail, tourism and healthcare services. The deal will be concluded by June 30, statements issued by ONGC said.
A Sistema statement said the prospective partners had agreed to jointly invest in future in “key” countries. The names of the key countries could not be ascertained.
“It is a frame-work agreement. We will soon negotiate specific terms of an agreement in this regard,” an ONGC official said. The frame-work agreement was signed on Tuesday by Sistema chairman Vladimir Evtushenkov and ONGC Videsh managing director RS Butola during Russian president Dmitry Medvedev’s India visit.
State-run oil companies are also interested in joining the consortium, the official said requesting anonymity. The proposed consortium would be led by ONGC Videsh.
The new firm will also hold Trebs and Titov, the major discovered fields estimated to have 200 million tonne recoverable reserves, equivalent to 35% of ONGC’s total crude oil reserves. The fields were awarded to Bashneft in a recent auction where ONGC had also participated but was disqualified. The deal is significant for a country like India that imports over 70% its oil and gas consumption.
Sistema has a 75% direct stake in Bashneft that produces 13 million tonnes of oil from fields in Russia. It also owns refineries with a combined capacity of 20 million tonnes. It has a 49% stake in RussNeft that producing 12 million tonnes of oil. Sistema has a presence in Indian telecom sector through Sistema Shyam TeleServices.
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