The value of the stake is not immediately known but ONGC Videsh Ltd (OVL) — the overseas investment arm of Oil and Natural Gas Corporation (ONGC) — is likely to pay an initial $300 million for drilling operations.

Russian company Rosneft, which owns 70 per cent in the project, will be offloading its stake to OVL if the deal goes through. The remaining 30 per cent stake is held by China National Petroleum Corporation (CNPC).

Vladimir Putin had said Russia would support India's participation in Sakhalin III when he visited New Delhi as President in January 2007.

The stake on offer is, however, lower than the 49 per cent India had been demanding over the last few years. However, ONGC officials are now seeing less promise in the Sakhalin III project.

The Sakhalin III project lies between Sakhalin I and Sakhalin II, which are already producing oil. "Logically, there should be big oil and gas reserves in Sakhalin III. But we are now of the opinion that the Sakhalin III reserves may not be huge," an ONGC official said.

Sakhalin III has in-place reserves of 800 million tonnes. Sakhalin I, in which OVL owns 20 per cent, has in-place reserves of around 1 billion tonnes and produces around 12 million tonnes of crude oil a year, equivalent to 37 per cent of the total crude oil produced in India.

Another ONGC official said the cost of drilling a single well in the Sakhalin area costs around $100 million as the area is covered with ice almost throughout the year. This is twenty times the $5 million it takes to drill an oil well in West Asia. "The costs are huge, and there is doubt over the prospectivity of the field," the ONGC official said.

The stake offer also has a strategic significance for the two countries that have shared a long history of economic collaboration.

Officials in the petroleum ministry, however, said India would seriously consider the Sakhalin III stake. "We have to get oil assets wherever they are available," an oil ministry official said. The Rosneft-CNPC consortium has already drilled three wells in the area. India is the world's two fastest-growing consumers of oil and gas after China.

"There have been traces of gas in all three wells but there is no discovered reservoir yet," said a senior ONGC official.

An ONGC team of geologists will be visiting Russia later this month to study the area.