Page 2 of 2 India plays at Russian Imperial roulette
By John Helmer
A report in August by Renaissance Capital - a Moscow brokerage that says it is
a market maker for Imperial shares - concludes that "compared with other
independent oil and gas companies operating in Russia, IEC [Imperial] is one of
the cheapest based on the reserves multiples". Dividing the enterprise value of
the company (market capitalization less debt) into the probable reserve total,
the report estimates a price of $2.10 per barrel of oil equivalent. Adding the
possible reserves reduces the per barrel price to $1.20. This compares with
significantly higher values for two other Russian junior oil producers, Sibir
Energy and West Siberian Resources. Both of those produce significantly more
oil and cash than Imperial.
Staff sources at the Control Commission in Moscow have
acknowledged they are studying whether ONGC's takeover of Imperial warrants
commission approval. The Federal Antimonopoly Service told Asia Times Online
that the approval process is under way. FAS spokesman Sergei Noskovich said
that ONGC had filed an application: "We are reviewing the application for the
deal involving Imperial Energy. In order to properly review this application,
we need an MNR [Ministry of Natural Resources] ruling on whether Imperial
Energy is a strategic company, holding strategic deposits, because in the event
that it is, then the deal should be approved by the commission headed by the
prime minister."
Sources close to ONGC claim that the Indians, looking to the possibility that
the deal could go through on the ground that it is too small for the Russian
government to be concerned, have already been talking to Rosneft and
Gazpromneft, two other major Russian oil producers also in the Tomsk region,
about future plans for cooperation.
Gazpromneft, the former Sibneft company that Gazprom bought from Roman
Abramovich in 2004, attempted to buy Imperial a year ago, but its price was
rejected by Imperial as too low at the time. ONGC Videsh was asked if the
reason its offer for Imperial is so high is that it plans to recoup part of the
price, by reselling a stake in Imperial to Rosneft or Gazpromneft. Officially,
there is no comment. However, unofficially, sources close to the Indian company
acknowledge there had already been "conversations" with both Russian companies.
The sources intimate that the Indians are reserving their options for what
happens after the deal.
Something similar has happened before. In August 2006, Chinese oil major China
Petroleum and Chemical Company (Sinopec) bought the Udmurtneft oilfields from
TNK-BP at a premium price, only to transfer a 51% stake to Rosneft shortly
afterwards. When it came to deal-making with the Russians, the Chinese had
shown in that transaction how they could out-maneuver the Indians. Sinopec was
reportedly a bidder for Imperial until the price ONGC proposed to pay grew too
high.
There are political problems in Moscow that the Indians are less ready to
acknowledge. Gazpromneft is under the wing of Medvedev, who was Gazprom’s
chairman until he moved to the Kremlin in May. Rosneft is chaired by Deputy
Prime Minister Igor Sechin, a close confidante of Putin, and a figure who is
famously jealous of his prerogatives in deciding who gets Russia's oil
concessions.
There may also be financing problems for ONGC, which has said it will raise a
bridge loan to finance the acquisition of Imperial. The crash in stock values
since July and August, when the transaction was negotiated, has cut Imperial’s
share price 36%. Bank lenders may be reluctant to accept Imperial shares as
collateral for the loan. If the loan terms require the surrender of all
Imperial shares as bank collateral, then the Control Commission may also be
concerned that non-strategic though they may be one by one, altogether they add
up to an asset the Kremlin does not want to risk forfeiting to a foreign bank
syndicate.
The pressure on Deora to bet Indian cash on something larger than Imperial is
thus casting a shadow over whether the government in Delhi continues to endorse
the Imperial takeover. India's priorities in Russia are much bigger, and
therefore "strategic", Deora's ministry has been suggesting this week. ONGC is
already a 20% stakeholder in the large Sakhalin-1 project in the Russian far
east; other shareholders include ExxonMobil with 30%; a Japanese consortium
with 30%; and two Russian stakeholders with a combined 19%. India is drawing
dividends from the project, but no oil, most of which is dispatched by tanker
from DeKastri port to Japan, South Korea and China.
According to briefings Deora's subordinates have given the Indian press this
month, ONGC is looking at participating in the development of Sakhalin-3,
another huge oil and gas deposit off Sakhalin island. Just one of the blocs in
this exploration area, Veninsky, is estimated to contain 169.4 million tonnes
of oil, and 258 billion cubic meters of natural gas. Three other blocs in the
same project area are estimated to contain more than 600 million tonnes of oil,
770 billion cubic meters of gas.
For the time being, Veninsky is considered an exploration project of Rosneft,
with China's Sinopec holding a 25% stake. Licenses for the entire field were
originally awarded in 1993, when ExxonMobil won. The US major had also won the
development rights to nearby Sakhalin-1. The Russian government has allowed the
second project to proceed into production, but barred ExxonMobil from gaining
production rights at Sakhalin-3. There has also been a high-level dispute over
whether Rosneft's grip on Veninsky should be canceled and the production rights
put up for auction.
If the Indians want to march into a new auction, and oblige the Chinese to step
aside, they are dreaming. Rosneft spokesman Nikolai Manelov told Asia Times
Online: "The current status [of Veninsky] is exploration. We are going to value
the reserves there very soon. I am not authorized to comment on what is going
to happen next. I am also not commenting on other companies, so I can’t answer
your question regarding ONGC."
Whether Rosneft intends to be ONGC’s silent partner, or simply silent, will
become clear in a few days’ time. The outcome will speak volumes about the
effectiveness of India’s oilmen in competition with the Chinese.
John Helmer has been a Moscow-based correspondent since 1989,
specializing in the coverage of Russian business.
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