Sinopec bows out of Imperial race

Move paves the way for ONGC to acquire the UK-based oil and gas explorer.

Oil and Natural Gas Corporation (ONGC), the state-owned oil explorer, today got a major boost in its bid to acquire UK-based Imperial Energy as China Petroleum & Chemical Corporation, commonly known as Sinopec, decided to withdraw from the race. The Sinopec Group is "no longer considering making an offer for Imperial,'' the Chinese company said in a statement today.

On August 26, the Chinese company said it was working on a possible counter-offer for Imperial Energy. ONGC Videsh, a wholly-owned subsidiary of ONGC, on Tuesday formally submitted a negotiated bid for $2.6 billion, or 1,250 pence a share, to acquire Imperial Energy, which operates primarily in Russia's Siberian region of Tomsk. Imperial had 920 million barrels of oil equivalent of proven and probable reserves as of December 2007.

Korea National Oil Corporation (KNOC), a possible bidder, is unlikely to bid as it has shown no interest so far. The company has not got any other formal offer, Imperial Energy spokesman Evgeniy Chuikov said. Korea National has no interest in bidding for Imperial Energy, a KNOC executive said on August 26, declining to be named, agencies reported today.

The possibility of any other company joining the fray is remote as they need the tacit support from the Russian Federation, said a senior executive of an institutional investment company, which owns more than a 2 per cent stake in Imperial Energy.

"The advisor, Deutsche Bank, which has approached institutional investors to buy their shareholding, was clearly indicating that the counter-offer from any other bidder was unlikely, which resulted into a decline in the share price by around 35 pence on Tuesday. The company's share price is trading around 1,160 pence, which is over 7 per cent below the bid price of 1,250 pence offered by ONGC Videsh," he added.

So far, OVL has not declared winning the support from the Russian authority, raising some apprehension on the success of its bid. This may be a strategic move to bring down the expectation of investors, said another investor.

"Sinopec was seen as one of the more aggressive potential suitors. The only potential threat is possible from some Russian companies, which is unlikely in case OVL has got support from the Russian government," said an investment banker tracking the transaction.

Bloomberg adds: "Sinopec was seen as one of the more aggressive potential buyers,'' Richard Rose, an analyst at Oriel Securities, said by phone from London today. "The only likely competitors now are the Russian companies, but our view is that ONGC will strike a deal with one of the Russian state companies after the acquisition.'' Rose has a "buy'' recommendation on Imperial Energy.

ONGC's cash offer of 1,250 pence a share is 61.9 per cent more than Imperial Energy's stock price on July 11, the day before the London-based company said it received a bid, according to a regulatory filing.

Imperial Energy said in April that it had pumped 7,000 barrels a day in the first quarter.

The company plans to produce 25,000 barrels of oil a day by the end of the year and expects to start output at the Kiev Eganskoye field on the east side of the Ob river in September.

ONGC's cash offer of 1,250 pence a share is 61.9 per cent more than Imperial Energy's stock price on July 11, the day before the London-based company said it received a bid, according to a regulatory filing.

ONGC shares fell Rs 7.4, or 0.7 per cent, to Rs 999.25 in Mumbai trading today. The shares have declined 19 per cent so far this year.

India is looking to invest in oil projects in Russia, Kazakhstan, Iran and Africa as the government expects economic growth to accelerate to as much as 10 per cent by 2012, fuelling demand for vehicles and electricity. The country imports more three-quarters of its oil requirements.