Oil India in talks to buy asset in Africa

Company to spend between Rs 5,000 and Rs 6,000 crore.

State-run Oil India Ltd (OIL) is in advanced talks to acquire an oil and gas producing asset in Africa, a person familiar with the matter said.

A company executive confirmed the development, adding the company would make a non-binding agreement for the acquisition in the next two-three months.

"Considering OIL largely operates in the northeast, we have been looking at reducing our risk concentration. Producing overseas assets provide us a good opportunity to do the same. We are also studying other assets in Africa," said an Oil India executive. The company is likely to spend between Rs 5,000 and Rs 6,000 crore on the asset, which has reserves of around 200 million barrels.

"We believe Maurel & Prom’s oil assets in Gabon has a similar data point as disclosed by the management for the potential target," said Deepak Pareek, Research Analyst-Institutional Equities, Prabhudas Lilladher Private Ltd.

OIL’s interest in the asset has been in the news for some time. The company has done the due-diligence and is likely to approach the empowered group of ministers for approval.

"Given the smaller size of the asset under contention, competition from bigger Chinese players is also not significant," said Pareek.

Production from the asset under discussion is likely to be 15,000 barrels of oil per day to 20,000 barrels of oil per day (around 25 per cent of the current production).

The management believes the acquisition is likely to be value-accretive as the company works with a minimum IRR (internal rate of return) of 14 while examining the acquisition prospects vis-à-vis an interest yield of 10.5 per cent earned on the cash with the company.

Apart from the conventional oil and gas segment, OIL is also looking for assets in the non-conventional hydrocarbon segment, such as shale gas, for strategic benefits.

OIL is actively pursuing opportunities to acquire producing E&P assets, exploration acreage, etc in Africa, West Asia, Southeast Asia, South America, Commonwealth countries and Russia.