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.