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Oil India Limited (OIL) along with ONGC Videsh Limited (OVL) will be spending $2.475 billion (Rs 14,765 crore as per today’s exchange rate) for acquiring 100% shares in Videocon Mozambique Rovuma 1 ltd.
Videocon owned 10% participating interest in the Rovuma Area 1 offshore block in Mozambique. OIL and OVL will make the acquisition via a special purpose vehicle formed jointly by the two companies.
Videocon owned 10% participating interest in the Rovuma Area 1 offshore block in Mozambique. OIL and OVL will make the acquisition via a special purpose vehicle formed jointly by the two companies.
The acquisition bodes well for both OVL and OIL as it will add to their gas Explorations and Production reserves and is a long term investment. The LNG production from the block is likely to commence in 2018.
Analysts estimate the recoverable reserves at 50 trillion cubic feet (tcf) versus the Anadarko’s estimate of 35-65 trillion cubic feet. Anadarko is the operator of the block.
OIL has cash of about Rs 12,000 crore (about Rs 200 a share), which it is now utilizing towards growing inorganically. A few days back it had announced the acquisition of a 49% stake in Assam Petrochemicals limited, a gas-based petrochemical producer, for about Rs 230 crore.
It will now be using about $ 990 million or Rs 5,900 Crore for this acquisition. While on one hand the acquisition will utilize major part of cash on books it will be EPS accretive in the longer run. Hence the market has reacted negatively to the news and the stock lost almost two percent today to Rs 545 levels.
OVL on the other hand will be pooling in the balance of around $1485 million or Rs 8860 crore. ONGC is a larger peer and has much more cash in hand. The company had cash and bank balances of about Rs 27890 crore at the end of FY13. The company has been following strategy of acquiring assets which will yield results immediately as well as those which will increase reserve base and add to produce in the longer run. With ONGC having more cash on books and percentage of cash outgo being much less compared to Oil India, the Stock has reacted positively to this development and trades almost four percent up at Rs 310 levels.
