India’s ONGC takes stake in African gasfield

Anadarko Petroleum, the US independent oil company, has sold a 10 per cent stake in a gasfield off the coast of Mozambique to India’s Oil and Natural Gas Corporation for $2.64bn in a deal that highlights the value of the vast gas discoveries in the country’s waters.

ONGC Videsh, the international division of India’s state-run ONGC, said Area 1 in Mozambique had the potential to become one of the world’s largest liquefied natural gas projects, and was ideally placed to supply the Indian market.

Anadarko will remain the operator of the Area 1 field and retain a 26.5 per cent stake. It plans to use cash from the sale principally in its onshore US oilfields, including the Eagle Ford shale and Permian basin regions of Texas and the Wattenberg field in Colorado.

Jon Wolff, an analyst at ISI Group, said in a note that the sale was good news for Anadarko because “it ensures receiving value for this outsized exploration success without the project risk”.

The deal underlines the unprecedented attention East Africa, and Mozambique in particular, has been garnering from the energy industry as the region becomes a focus of new natural gas discoveries. Some 110tn cubic feet of gas has been found off Mozambique’s Indian Ocean coast where Italy’s Eni and Anadarko are operating with predictions that the impoverished southern African nation could become a major LNG exporter.

The sale to ONGC follows several other deals in the region after huge discoveries of gas off the coast of Mozambique in the past three years. Area 1 alone is believed to hold 35tn-65tn cubic feet of recoverable gas – enough to meet India’s entire gas demand at current rates for at least 15 years.

Eni, Anadarko and other companies with stakes in the fields are working on a joint plan for an LNG export project that would come on stream in 2018.

Shares in ONGC dropped 3.1 per cent on Monday in a broadly flat market, amid investor concerns that the company may have overpaid in what is said to have been a competitive bidding process.

The valuation placed on the 10 per cent stake by the ONGC deal implies a valuation for Area 1 about 18 per cent higher than in a deal last year in which PTT Exploration and Production of Thailand acquired an 8.5 per cent stake through its $1.9bn takeover of UK-listed Cove Energy.

As a state-run company, ONGC also is “taking into account the long-term energy needs of the country but that doesn’t mean this is good for minority shareholders”, said Dikshit Mittal, analyst at SBI Capital Markets.

Power shortages are often blamed for the economic slowdown in India, a country that has 17 per cent of the world’s population but just 0.35 per cent of global oil reserves and 0.6 per cent of natural gas reserves.

ONGC and Oil India earlier this year jointly bought a different stake in Area 1 from Indian conglomerate Videocon for $2.48bn.

“Given the low potential of the Indian sedimentary basin they [ONGC] believe production growth will have to come from overseas,” said Dayanand Mittal, energy analyst at brokerage Ambit Capital in Mumbai.

Analysts expect ONGC will fund the new purchase through dollar-denominated debt. In a note to clients last week Moody’s, the rating agency, said it expected the company to make further overseas acquisitions and that the resultant shift from a net cash position to a net debt position was not a concern for a group with “low debt leverage and good financial flexibility”.

The stake sale to ONGC is expected to close around the end of the year.