Essar Oil to sell 49% stake to Russia's Rosneft for USD 3.2 bn

Russia's top oil producer Rosneft will buy 49 per cent stake in Essar Oil for about USD 3.2 billion after excluding the Mumbai-based firm's flourishing coal-bed methane (CBM) business.

Rosneft, the world's top listed oil producer, will get a hold in India's second biggest oil refinery as well as its 1,600 petrol pumps that will more than triple to 5,000 in two years.

The Russian firm will also supply 10 million tonnes a year of crude to Essar Oil's 20 million tonnes per annum Vadinar refinery in Gujarat for 10 years.

"Rosneft and Essar Oil & Gas Ltd / Essar Energy Holdings Ltd, companies incorporated and managed under the laws of Mauritius, have signed a non-binding Term Sheet with regard to Rosneft's participation in the equity capital of Essar Oil Ltd with a share of up to 49 per cent," Essar Oil said in a statement.

The proposed transaction is conditional upon various factors such as due diligence, determination of the transaction price, execution of definitive transaction documents and receipt of requisite approvals, it said without disclosing the deal size.

Sources privy to the development said Rosneft will pay USD 3.2 billion for the 49 per cent stake.

The deal, however, does not include Essar Oil's upstream portfolio comprising of five CBM blocks, holding up to 10 trillion cubic feet of gas resource as well as Ratna and R-Series oil and gas fields in the western offshore.

Promoter Ruia family hold 90.5 per cent of Essar Oil, of which 65.6 per cent is in the form of overseas depository shares.

The company is in the process of getting delisted through a share buy back. Market regulator Sebi had in November put the delisting process on hold over treatment of GDRs.

That issue has now been sorted out, sources said.

Essar may cut imports from Iran to accommodate Russian barrels. Essar depends heavily on Iran to feed its Vadinar refinery, importing about one-fourth of its oil needs from the Persian Gulf nation.

Rosneft is majority owned by the Russian government with BP Plc holding under a 20 per cent stake and public shareholding at around 10 per cent.

The twin stake and oil supply deals were signed by Rosneft Chairman Igor Sechin and Essar Group founder Shashi Ruia in Ufa, Russia yesterday evening on the margins of the BRICS summit.

Rosneft in a statement said the crude supply agreement enables it to expand market outlet and amplifies the volume of supplies to the region, where growing points of the world's economy are concentrated.

"Thanks to this agreement Rosneft grants itself a secure market outlet of crude oil, which will create an additional possibility of production planning and marketing," it said.