(EnergyAsia, September 17 2012, Monday) — Has Indian upstream company ONGC Videsh made the right move paying a total of US$1 billion for a 2.72% stake in mature Azerbaijan oilfields, and 2.36% interest in an oil pipeline?
Analysts are asking this question after the subsidiary of state-owned ONGC announced it would be using the bulk of its cash holdings to pay US independent Hess for its holdings in the Azeri, Chirag and Guneshli fields (ACG) and interest in the associated BTC pipeline.
The deal would boost ONGC Videsh’s production by a mere 1.6% and its proved reserves by 1.8%. The assets are likely to show declining output in coming years, as suggested by the US firm’s statement that it is selling off mature and small holdings that include the ACG fields which have been producing since 1997.
Located in the Caspian Sea 95km east of Baku, the BP-operated fields produce around 700,000 b/d of crude. The complex’s other owners are State Oil Company of Azerbaijan Republic (SOCAR), Chevron, Statoil, ExxonMobil, Inpex, Turkish NOC – TPAO and Itochu.
The 1,768-km BTC pipeline is a key infrastructure handling the export of one-million b/d of Caspian crude oil to the Ceyhan terminal in the Mediterranean Sea in south-east Turkey.
“The sale of our interest in ACG is consistent with our strategy to divest mature and small working interest assets.
Including this transaction, we have announced asset sales year-to-date totaling nearly $2 billion and additional asset sales are underway as part of our strategic portfolio reshaping,” said Greg Hill, Hess’s President of Worldwide Exploration and Production.
The New York-based company is focusing on developing its shale and other upstream assets in the US.
The relatively high transaction price reflects the growing global competition for increasingly scarce oil and gas resources. The transaction is expected to close in the first quarter of 2013 after it clears Indian and other government and regulatory approvals.
ONGC Videsh said the acquisition would mark its entry into oil-rich Azerbaijan and aligns with the company’s strategic objective of adding high quality international assets to its upstream portfolio while boosting India’s energy security.
Under the parent company’s long-term plan, ONGC Videsh must boost its hydrocarbons production from the current level of 8.75 million tonnes of oil equivalent (MMTOE) to 20 MMTOE by FY2018 and 60 MMTOE by FY2030.