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OVL to acquire ConocoPhillips' 8.4% stake for $5 bn

NYSE listed ConocoPhillips is the third largest energy company in the US and the fifth largest refiner in the world

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In its biggest acquisition, Limited (OVL) will invest around $5 billion to acquire ConocoPhillips’ 8.4% stake in the Kashagan field of North Caspian Sea. The deal is expected to close during the first half of next calendar year.

The company had acquired Imperial Energy for $2.1 billion in 2009, its biggest buy so far. The latest acquisition will help it offset the drop in production from Sudan and Syria, which pulled its output down by more than 7% in FY12.

In a statement, the company said, “ONGC Videsh has finalised definitive agreements for the acquisition of the 8.40% participating (PI) interest of in the North Caspian Sea Production Sharing Agreement (NCS PSA) that includes the Kashagan Field, in Kazakhstan. The acquisition is subject to relevant government, regulatory approvals, priority rights and consortium pre-emption rights”.

NYSE listed ConocoPhillips is the third largest energy company in the US and the fifth largest refiner in the world. In a statement on its web site, the company said that “expected proceeds are approximately $5 billion, which represents the purchase price plus expected working capital and customary adjustments at closing”. “The proposed sale of its Kashagan interest is part of ConocoPhillips’ plan to increase value for shareholders through focused capital investments and a commitment to deliver growth in production and cash margins, improved returns on capital, and sector-leading shareholder distributions”, ConocoPhillips said.

“The sale of this quality asset is an important component of our ongoing strategic asset disposition program,” said Don Wallette, executive vice president, Commercial, Business Development, and Corporate Planning at ConocoPhillips. “We are pleased that ONGC Videsh recognizes the value of this asset.”

The acquisition would mark OVL’s entry into the largest oil proven North Caspian Sea of Kazakhstan. The Kashagan Field, located in the shallow waters of the Kazakh North Caspian Sea, is the world’s largest current development project. Kashagan’s consortium partners are Eni, Total, Shell, ExxonMobil and KazMunaiGaz each with 16.81% PI each, while ConocoPhillips has 8.40% PI and Inpex has 7.56%.

From Phase 1, the acquisition is likely to add an average annual production of about 1 million tonne for a period of over 25 years with a peak of about 1.6 million tonne. When Phase 2 and 3 are implemented, the OVL’s share will be significantly higher, it said. The acquisition also bears a significant strategic importance to India in terms of contributing towards India’s energy security.

ONGC has recently formulated its 2030 Perspective Plan that envisages increasing OVL’s production to 20 million tonnes by 2018 and 60 million tonnes by 2030. It currently produces 8.75 million tonnes. Suhir Vasudeva, ONGC chairman and managing director said the acquisition was a major step towards that goal. In September this year, OVL had announced acquisition of Hess Corporation’s 2.72% participating interest in the Azeri, Chirag and the deepwater portion of Guneshli (ACG) fields in the Azerbaijan sector of the Caspian Sea and 2.36% interest in the BTC pipeline for $1 billion.

Goldman Sachs is acting as exclusive financial advisor, Allen & Overy as legal advisor, E&Y as tax and accounting advisor and bayphase as technical advisor to ONGC Videsh.

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