ONGC and Rosneft sign large oil deal

ONGC and Rosneft sign large oil deal

LONDON (Reuters): India's ONGC Videsh Ltd and Russia's Rosneft
on Saturday finalized a deal in which ONGC will buy a 20 percent
stake in the giant Sakhalin-1 oil field where production is
expected to start in 2005.

In the largest merger and acquisition deal in Russia,
according to the participants, the Indian group will purchase the
stake from Rosneft and its initial investment in the project is
expected to be in the range of $1.5 to $2 billion.

Sources familiar with the deal say state-owned ONGC will pay
around $180 million up front for the stake.

"This transaction is a major step in our strategy to achieve
energy security, and is a first in a series of initiatives by
ONGC to become a major international energy company," said Ram
Naik, India's Cabinet Minister for Petroleum and Natural Gas.

ONGC was advised by JP Morgan and Rosneft by ABN AMRO in the
deal which started last year.

"ONGC and Rosneft are both extremely commercially minded,"
said Jeremy Wilson, managing director and head of energy mergers
and acquisitions at JP Morgan.

"However, doing a cross-border deal between India and Russia
this was probably the most complex deal we have done," said
Wilson, who worked on deals such as BP's acquisition on Amoco and
Exxon's purchase of Mobil.

ONGC joins subsidiaries of Exxon Mobil Corp and Japan's
Sodeco, which have 30 percent each as well as Rosneft with 20
percent, as shareholders.

As part of the agreement, ONGC will invest in development,
financing Rosneft's participation in the project until it
generates positive cash flow.

Oil production is expected to build to production levels of
200,000 barrels per day, while natural gas sales could rise to as
much as one billion cubic feet per day over time.

The deal between ONGC and Rosneft marks the resumption of
historically close ties between Russia and India and comes as the
Indian company aims to increase overseas production of energy
from 30 percent of demand at present to 50 percent in the next 10
years.

The deal comes after Putin visited India last year to sign
trade deals.

ONGC has entered into an exploration agreement in Iraq and has
memorandums of understanding with Indonesia's Pertamina and has a
40 percent share of a gas field in Vietnam.

It has plans to expand into production in Venezuela and
elsewhere.