ONGC to buy COP's 8.4% stake in Kashagan field for $5 billion

In its biggest acquisition ever, state-owned Oil & Natural Gas Corp (ONGC) on Monday agreed to buy US energy giant ConocoPhillips' 8.4% stake in the Kashagan oilfield in Kazakhstan for about $5 billion.

ONGC Videsh Ltd, the overseas arm of the state explorer, will pay a base price of $4.25 billion plus a share of working capital and other cash calls together with interest for the 8.4% stake in the field that produces 370,000 barrels per day (18.5 million tons a year) of crude oil.

This will be the biggest acquisition by OVL, surpassing its $2.2 billion buyout of Russia-focused Imperial Energy in January 2009.

It will be the biggest acquisition by an Indian company this year, and the sixth largest in the history.

OVL is seeking oil and gas properties overseas to meet the nation's rising energy needs. India last year spent $140 billion on import of crude oil.

The stake buy in Kashagan field is subject to approval of governments of Kazakhstan and India and also to other partners in the Caspian Sea field waiving their pre-emption rights.

Italy's Eni, Royal Dutch Shell, France's Total, ExxonMobil and KazMunayGas have 16.81% stake each, while Inpex of Japan has the remaining 7.56 per cent.

Industry sources said ExxonMobil and Shell are seeking bigger stakes in the Kashagan oil field and operating control before starting to expand the project.

OVL concluding the deal would depend on the two firms waiving their right of first refusal (ROFR) or pre-emption rights.

Kashagan, the biggest world oilfield discovery since 1968, holds an estimated 30 billion barrels of oil-in-place, of which 8-12 billion are potentially recoverable. Plans have already been firmed to ramp up output to 450,000 bpd (22.5 million tons per annum).

ConocoPhillips (COP) and OVL in separate but almost identical statements said the deal is expected to close in the first half of next year.

"The acquisition would mark OVL's entry into the largest oil proven North Caspian Sea of Kazakhstan. From Phase 1, the acquisition is likely to add an average annual production of about 1 million tons for a period of over 25 years with a peak of about 1.6 million tons," OVL statement said.

When Phase 2 and 3 are implemented, the OVL's share will be significantly higher.

This will be OVL's second acquisition this year. It had a couple of months back bought stake in a group of oil fields in Azerbaijan for about $1 billion.

Deals bigger than the one announced on Monday include Tata Steel's $12.2 billion takeover of European steel giant Corus, Vodafone taking over controlling stake in Hutch-Essar from Hutchison for about USD 11 billion and Bharti Airtel's acquisition of Zain Telecom's African assets for about $10.7 billion.

Billionaire Anil Agarwal-led Vedanta Group's $8.6 billion acquisition of Cairn India is fourth and Hindalco Industries' buyout of Canadian firm Novelis Inc for $6 billion is fifth biggest.

COP expects proceeds of $5 billion, including the purchase price and expected working capital and closing adjustments, according to a statement from the Houston-based company.