Page 1 of 2 India plays at Russian Imperial roulette
By John Helmer
MOSCOW - India's Minister of Petroleum and Natural Gas Murli Deora was to have
been in Moscow last week to urge approval of a controversial plan to put 1.4
billion pounds sterling (US$2.43 billion) into a London-listed company called
Imperial Energy Corporation. Questions the deal raises include why Imperial,
why so much, and why was the visit delayed?
Imperial's oil deposits in the Tomsk region of Siberia are years from full
production, its current operations are loss-making, and its oil, when it
finally is lifted, will either be refined in Russia or be exported by pipeline
to China.
Satbir Singh, acting ambassador at the Indian Embassy in Moscow, was flummoxed
when asked to explain whether Deora had been expected on October 23, the
minister's announced date
of arrival. "We have no concrete information," Satbir said through a spokesman.
The official embassy spokesman, A V S Rameshchandra, made himself incommunicado
for the day after leaving a message on his desk advising callers that if they
had a question about Deora, they should call New Delhi.
There, it turned out, Deora's subordinates were announcing that Deora would be
in Moscow on November 4. They added that he was not making the trip to promote
the Imperial Energy takeover by India's state-owned offshore oil holding, ONGC
Videsh. According to S Sundareshan, a ministry official, Deora's two-day trip
next month will aim at securing the Russian government's support for ONGC to
buy stakes in other Russian oilfields and gas fields, though which ones
Sundareshan didn't say. R S Sharma, chairman of the Oil and Natural Gas Company
(ONGC), the parent of ONGC Videsh, announced that "the Imperial transaction may
not be on the agenda".
It is eight weeks to the day since Deora met Russian President Dmitry Medvedev
in Dushanbe, Tajikistan, during a summit meeting of Central Asian states. Then
Deora seemed to know what assets he wanted. He told the press he had asked
Medvedev to back ONGC Videsh's bid for Imperial, and reported what he was told:
"I am very happy with the meeting and confident that our Russian friends will
help us overcome all situations in this deal."
Deora didn't explain what "situations" were standing in the way of closing the
Imperial deal, which was first announced in August. Imperial employs the Pelham
public relations company in London to be its spokesman, and according to
Pelham's Evgeny Chuikov nothing can be said by the company on the record,
beyond the deal conditions already announced. These acknowledge that Russia's
new Control Commission on Foreign Investment, headed by Prime Minister Vladimir
Putin, and the Federal Antimonopoly Service (FAS) should regulate the
transaction and approve it, according to the April 29 law on foreign takeovers
of strategic assets.
The hint of help Deora mentioned from his Russian "friends" materialized in a
wire service report last Friday. The report indicated the deal could go through
without approval from the Control Commission because the federal Ministry of
Natural Resources (MNR) has now ruled that Imperial's asset are not strategic.
When counted one by one, they fall below the 70-million tonne threshold set out
in the law.
The problem with the press announcement, attributed to "a ministry official,
who declined to be identified", is that the ministry's official spokesman,
speaking for Yury Trutnev, the minister, told Asia Times Online that the
ministry had reached no such conclusion at all - at least not yet.
Sources close to ONGC Videsh, and also Imperial, told Asia Times Online they
knew no more of Deora's movements and negotiating agenda than what they had
been reading in the press. But one source hinted there was a reason why ONGC
Videsh had been bidding for Imperial that had not surfaced publicly before.
That reason, he said, was that the Indians had already decided to bypass
Russian government approval and had intentionally chosen a deal for a
non-strategic Russian oil asset. By picking oil deposits below the strategic
threshold, the source suggested, ONGC Videsh could buy as a "100% owner",
without a Russian partner. The Indian company would not have made its bid at
all, the source added, if the oil and gas resources were so large as to be
classed as strategic under Russian law, and required a Russian partner as well
as the permission of the Russian government to proceed.
Why then would the Indian government, and its ONGC Videsh arm, want to pay 1.4
billion pounds for peanuts?
At the time the offer was made, the sterling share price offer was equivalent
to US$2.6 billion. Today, the collapse of sterling has lowered it to $2.2
billion. Still, the offer represented a 62% premium on the share price of
Imperial just before first word of the acquisition was disclosed to the London
Stock Exchange. The subsequent crash in stock prices has meanwhile cut
Imperial’s share price to 876 pence today, equivalent to 894 million pounds
($1.4 billion).
Why would the Indian government and its state oil company concede that even
buying peanuts in Russia's oil sector required the petroleum minister to speak
to two Russian presidents about it - Putin in January 2008, Medvedev in August
- plan an October visit to Moscow to negotiate, then postpone that to November?
According to Indian critics of Deora's policy and ONGC's spending plans, the
reason for proposing to spend billions of dollars on peanuts is unprintable.
Imperial lists as assets 17 oilfields in the Tomsk region of southeastern
Siberia; it has employed a US consulting company, Golyer and MacNaughton, to
estimate the reserves. Reserve data are difficult to assess, for they depend on
the classification systems used, North American and Russian; and because the
international reserve estimates have been challenged by Russia's licensing
authority, Rospriradnadzor. According to data provided by Imperial, proven and
probable reserves (classified P1, P2 in the US, C1 and C2 in Russia) total 118
million tonnes. The largest of the fields is reported to contain 19 million
tonnes, far below the strategic threshold.
Imperial also reports possible reserves (P3), and with them, counts a grand
total of 451 million tonnes. With this counting methodology, two of the fields
would rise just above the strategic threshold.
Analysts report that the company's exploration activities improve the prospects
that these additional numbers may be added to the state registered reserves
total. The reserve figures tripled between 2004 and 2006, and grew by another
15% last year. For the time being, Imperial has told Asia Times Online the only
numbers officially allowed for reserve counting put all of Imperial's fields
under the strategic limit.
Last year, Oleg Mitvol headed the inspection effort of Rospriradnadzor, the
license compliance branch of MNR; at the time he challenged both Golyer and
MacNaughton's reserve counts and Imperial's licenses. This week, he told Asia
Times Online that he remained skeptical of Imperial's reserve counts, while
being convinced that whatever number lay underground, "I don't think this
company's [assets] are strategic."
Imperial's current output is about 25,000 barrels per day (3,400 tonnes), with
a target of 35,000 bpd in a year's time. The unaudited result for the first
half of this year is a loss of $19 million.
If the reserves are too small to warrant the strategic label, are they too
small to earn the 1.4 billion pounds the Indians are offering? Imperial claims
that the collapse in the current world price for oil ought not to make a
difference to the long-term value of Imperial's oilfield assets.
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