Indian Oil, Oil India, BPCL unit to raise $2 billion

Mumbai: Indian Oil Corporation Ltd (IOC), Oil India Ltd and Bharat PetroResources Ltd (BPRL), a unit of Bharat Petroleum Corporation Ltd (BPCL), are together looking to raise $2 billion in debt to fund their purchase of stakes in two Russian fields, Vankorneft and Tass-Yuryakh, said four people aware of the development.

Russian energy giant OAO Rosneft had in March agreed to sell stakes in the two Siberian oil and gas fields to the state-run Indian oil companies.

IOC, Oil India and BPRL signed an agreement to purchase a 29.9% stake in Tass-Yuryakh oilfield from Rosneft. Rosneft owns 80% of the field while BP Plc. holds 20%. The field currently produces 20,000 barrels of oil per day (bopd), with a peak production of 100,000 bopd expected by 2021.

IOC, BPCL and Oil India did not respond to e-mails seeking details of their fund-raising plans.

Separately, the consortium also signed a deal to acquire up to a 23.9% stake from Rosneft in the Vankorneft field. Rosneft owns 85% of the field, while ONGC Videsh Ltd (OVL) owns 15%. OVL is the overseas exploration and production arm of state-run Oil and Natural Gas Corporation (ONGC).

Both the deals are to close by September. “The companies have floated a RFP (request for proposal) to raise $2 billion through bridge loan. This is to finance purchase of stakes in both Tass-Yuryakh and Vankor oil fields in Russia,” said an investment banker directly aware of the development.

The Vankorneft field in East Siberia is Russia’s second largest by production and accounts for around 4% of the country’s oil output. It currently produces approximately 422,000 bopd. It is the largest field discovered and commissioned in Russia in the last 25 years.

“They obviously need to raise capital to back the large acquisition they have made and they are planning to get it done soon. Even though there are US and EU sanctions on Russia, because these are Indian government entities, they will not find it difficult to raise capital,” said a second investment banker from a foreign investment bank.

India has been striving to protect its energy security by acquiring assets overseas. Western sanctions against Russia for its annexation of Crimea in 2014 and a glut in international oil markets that have caused crude prices to slump have made the valuation of the Siberian assets attractive for India.

“Currently, Russia is in a bit of a liquidity crisis and willing to sell stakes in its hydrocarbon assets. OVL acquired Rosneft’s share in the Sakhalin field in similar circumstances and Sakhalin turned out to be a gold mine. I think these stake buys will be equally good for Indian companies,” said R.S. Sharma, former chairman of ONGC.