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ONGC said to block China in Brazil with Shell

Oil & Natural Gas Corp of India and Royal Dutch Shell will increase their ownership of a Brazilian oilfield, blocking a bid by China’s Sinochem Group, three people with knowledge of the matter said.

ONGC, which owns 15 per cent of the Parque das Conchas field, will acquire a further 12 per cent from Petroleo Brasileiro SA, two of the people said, asking not to be identified before an announcement is made. Shell, which operates and owns 50 per cent of the offshore block, exercised its right to buy a further 23 per cent, one person said.

The Anglo-Dutch oil company, which missed profit estimates last quarter by the most since 2008, has been expanding the Brazil project in part to counter production losses in Nigeria and asset writedowns in North America. State-run ONGC, which has for years lost out to Chinese competitors, announced a record number of acquisitions this year and plans to spend $174 billion by 2030 to increase output.

“There’s no option for ONGC now but to be aggressive,” said Kamlesh Kotak, head of research at Asian Markets Securities in Mumbai. “It has to think long-term, it has to think overseas because its operations in India are flattening out. It won’t be an easy task.”

ONGC shares rose 5.7 per cent to Rs299.20 at the close in Mumbai, giving the explorer a market value of $41.4 billion. The stock has increased 12 per cent this year, compared with a 6.3 per cent gain in the benchmark S&P BSE Sensex index. Shell’s Class A shares advanced 1.2 per cent to 2,067.50 pence in London.

ONGC will fund the purchase of the stake at the field, also known as BC-10, with its own cash, the people said.

Sudhir Vasudeva, chairman of ONGC, didn’t answer two calls to his mobile phone seeking comment. Julia Dudley, a London-based spokeswoman for Shell, declined to comment.

Petrobras said last month it would sell its 35 per cent stake in the offshore project to Sinochem for $1.54 billion. The current partners in the field have the right of first refusal and can block the Chinese offer, Petrobras said at the time.

Two calls outside business hours to Petrobras’s press office in Rio de Janeiro went unanswered. Hu Hongjun, Sinochem Group’s Beijing-based spokesman, didn’t answer three calls to his office line seeking comment.

ONGC lost out on a $5 billion bid to buy an 8.4 per cent stake in Kazakhstan’s biggest oilfield in July after the government exercised its right to step in and purchase it in place of the Indian company. Kazakhstan then sold the stake in the Kashagan field to China National Petroleum Corp.

Seven years ago, the Chinese company also beat ONGC by paying $4.18 billion for PetroKazakhstan Inc, then China’s biggest overseas oil deal.

ONGC plans to borrow a record $4 billion overseas this year to finance the purchase of stakes in a gas field off Mozambique, ONGC Videsh Managing Director D.K. Sarraf said last month.

The New Delhi-based company and its units had Rs196 billion ($3.2 billion) of cash as of March 31, 32 per cent less than a year earlier, according to data compiled by Bloomberg. Cash from operations dropped two per cent to Rs479 billion, a third straight year of declines.

Securing fuel supplies is crucial for Prime Minister Manmohan Singh, who’s struggling to narrow India’s record current-account deficit and revive growth from the lowest in a decade. Asia’s third-biggest economy imported 81.5 million metric tonnes of crude oil in the five months through August for $60.2 billion, oil ministry data show. The bill was $144 billion in the year through March, 3.3 per cent higher than the prior year.

ONGC agreed to pay Anadarko Petroleum Corp $2.64 billion for a 10 per cent stake in the Mozambique gas field last month. In June, ONGC and smaller state-owned Oil India jointly purchased a 10 per cent interest in the same field from India’s Videocon Industries Ltd for $2.5 billion.

“It’s come to a point when ONGC has to go all-out to meet not just its own requirements but also India’s,” K.K. Mital, a portfolio manager at Globe Capital Market Ltd, said by phone from New Delhi. “Until India’s state-run companies can control substantial amounts of oil and gas overseas, the country will continue to be vulnerable.”

In India, ONGC gives discounts on its crude-oil sales to state-run refiners including Indian Oil Corp to partly compensate them for selling fuels below cost to cap inflation. As a result, ONGC reported a fourth consecutive quarter of lower profit in the three months through June, the longest streak of declines in three years.

The discounts have shrunk the company’s cash reserves and affected its ability to acquire assets, Globe’s Mital said. Indian companies have announced $13 billion of oil and gas acquisitions overseas in the past five years, with ONGC being the biggest with $11 billion, according to data compiled by Bloomberg. That compares with $109 billion by Chinese companies.

“This tussle will continue,” Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd, said by telephone from Kollam in southern India. “India needs the oil and gas and the government will push ONGC to lead the oil companies overseas.”