India’s largest oil producer ONGC has agreed a £1.4 billion ($2.6 billion) takeover of Russia-focused oil explorer Imperial Energy Corp Plc as it works to secure energy to fuel India’s booming economy.
Imperial Energy Corp Plc said on Tuesday that ONGC’s overseas arm, ONGC Videsh, would pay 1,250 pence in cash for each of its shares in a deal that could double state-owned ONGC’s proved and probable reserves. This is less than the 1,290 pence approach Imperial said last month it was discussing with an unnamed bidder, which sources close to the matter identified as ONGC.
Nonetheless, some analysts welcomed the approach. “This is a good price, given consideration for the current softening in oil prices, the turbulence on global stock markets and the geopolitical stage,” analysts at brokerage Daniel Steward said in a research note. But Andrey Gromadin at JP Morgan said a possible rival bid from China could push the price higher. “We believe 1,250-1,500 pence is highly attractive and represents a best-case scenario for shareholders,” he said in a research note.
Imperial shares traded down 0.4% at 1,235 pence at 1018 GMT, outperforming a 1.7% fall in the DJ Stoxx European oil and gas sector index. Imperial shares have risen sharply in recent weeks as investors hoped a bid battle would develop after the company said earlier this month it had received a second approach from an unnamed party.
Sources close to the matter identified this party as Sinopec, and said the Chinese state-controlled company had gained access to Imperial’s books but failed to table a bid. News reports and market rumors cited by traders also said bids could come from Korean and Kazakh companies.
Sources close to the parties said ONGC had received a green light from the Indian and Russian governments to buy Imperial. Investors also feared that a deal might not come at all, as Indian oil companies have in the past failed to table firm bids for companies and assets they have appraised. Also, Russia has become an increasingly difficult place in which to do oil deals as the Kremlin has increased its control over the oil industry.
The sources said the drop in the price which ONGC was prepared to bid reflected the fall in the oil price to around $114/barrel from a July 11 peak above $147/barrel. ONGC Videsh already has a presence in Russia through its 20% stake in the Exxon Mobil-led Sakhalin-1 oil and gas project, which is currently locked in a dispute with the Kremlin. Moscow is blocking the consortium from exporting gas while Exxon says its contract allows.
The bid values Imperial’s 920 million barrels of proved plus probable reserves (2P) -- an estimate of recoverable oil and gas -- at around $2.77/barrel, according to Reuters calculations. The reserves of larger Russian rival Novatek are valued at around $2.82/bbl, while LUKoil’s are worth around $1.93/bbl for OAO LUKoil, based on their market capitalizations and including other assets such as pipelines.
Russian reserves sell at a relatively low price compared to other regions such as the North Sea and Gulf of Mexico due to high taxation and political uncertainty in Russia. In the North Sea, 2P reserves sell for over $10/bbl. Imperial founder Peter Levine should net about £100 million from the sale, according to Reuters data. (Reuters)