RACE FOR MOZAMBIQUE GAS FIELD STAKE

Shell, ONGC Team Emerge Front-runners

Anadarko Petroleum and Videocon are selling 10% each in Mozambique’s Rovuma-1 offshore block

Global energy major Shell and the Indian consortium led by state-run ONGC are the front-runners for the 20% stake in a giant gas field in the deep waters which may be fetch a value of up to $6 billion, sources familiar with the ongoing transaction said. Anadarko Petroleum and India’s Videocon Industries are selling 10% each in Mozambique’s Rovuma-1 offshore block, which has attracted global attention after the operator made the world’s biggest natural gas discovery in a decade.

ONGC sources said the company’s overseas arm, ONGC Videsh, considered a higher bid for the stake, but the oil ministry is more circumspect. The government is cautious because ONGC’s aggressive bid for Imperial Energy turned out to be an embarrassment as output from its field was significantly lower than what the company bargained for. The Comptroller and Auditor General criticised ONGC for that deal. Sources said Shell may have the edge over the consortium of ONGC and Oil India because of the international major’s financial muscle and domain expertise, particularly in liquefied natural gas (LNG) are decisively superior.

Last year, Thailand’s PTT Exploration and Production Public Company (PTTEP) trumped Shell and 20 other suitors, including BP, Exxon Mobil and Chinese firms, in a $1.91-billion deal with Cove Energy, a small UK explorer, to buy out its 8.5% stake in the same field. That transaction is a benchmark for Videocon and Anadarko, and values the 20% stake being sold at almost $4.5 billion.

Total SA, Europe’s third-biggest oil company, had also studied a bid for the stake and decided not to make an offer, CFO Patrick de la Chevardiere said last week, citing the risk of cost overruns and project delays, according to a Bloomberg report. But the sellers are upbeat about the block, and are demanding a significant premium, particularly after last week’s discovery of another gas reserve, which is being evaluated. With expected recoverable gas reserves of close to 60 trillion cubic feet (tcf), Rovuma-1 is already among the most sought global gas asset today. Even at a conservative 50% probability of recovery success, the expectation is of 42 tcf of natural gas. To put it in context, this is twenty times India’s current annual gas consumption. The deal may still take a month to close as documents regarding various shareholder agreements are getting currently getting processed. Standard Chartered Bank and UBS are advisors to Videocon, while Citi is advising Anadarko. Bank of America Merrill Lynch and Morgan Stanley are separately advising OVL and Oil India, respectively. Julia Dudley, a Shell’s spokesperson told ET, the company would not comment on market speculation. Sudhir Vasudeva, chairman & MD, ONGC and DK Saraaf, MD, ONGC Videsh could not be reached. “I cannot comment on specifics but we have considerable interests from many parties,” Venugopal Dhoot, chairman, Videocon Industries, told ET.

The Anadarko spokesperson did not respond to the calls on his mobile phone till the time of going to press. The Mozambique project envisions a $20-billion capex in upstream and downstream-related investments. This includes at least two to four natural gas liquefaction plants of 5 million tonnes, each with facilities to compress and purify them along with a port and a jetty. “Anadarko would want a player like Shell who would have the best LNG expertise globally. Also, we are talking of a $4-billion additional exposure towards capex for any new partner. Shell has far deeper pockets,” said another official.

Mozambique may have 250 trillion cubic feet of reserves, according to Empresa Nacional de Hidrocarbonetos, the country’s state-backed energy company. It is poised to become the second-largest LNG exporter in the world after Qatar, overtaking Australia. If the Indian consortium turns successful, it would be the third successive deal in the country by state-run Asian energy conglomerates, following PTT Thailand and the recent acquisition by China National Petroleum Corporation (CNPC) for a 20% interest in the next block for $4.2 billion.

This is also the reason why the Chinese and Thai energy companies are believed to have been relatively muted in the bidding. Shell, on the other hand, is far more aggressive losing out last time around.

Source: ET 02.05.2013