ONGC Agrees to Buy Imperial Energy for $2.58 Billion

By Archana Chaudhary and Stephen Bierman
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Aug. 26 (Bloomberg) -- Oil & Natural Gas Corp., India's biggest exploration company, agreed to buy Imperial Energy Plc for 1.4 billion pounds ($2.58 billion) to tap Siberian deposits and make up for dwindling output at home.

The cash offer of 1,250 pence a share is 61.9 percent more than Imperial Energy's share price on July 11, the day before the London-based company said it received a bid, according to a statement distributed by Regulatory News Service. China Petroleum & Chemical Corp. indicated today it may bid for Imperial Energy.

India's explorers have been outbid by Chinese rivals as the two most populous nations compete for energy assets globally. The South Asian nation is looking to invest in oil projects in Russia, Kazakhstan, Iran and Africa as the government expects economic growth to accelerate to as much as 10 percent by 2012, fueling demand for vehicles and electricity. India imports more than three-quarters of its oil requirements.

``The offer for Imperial seems fairly priced, especially considering the volatility in energy prices,'' said Ballabh Modani, Mumbai-based analyst at Enam Securities Pvt. ``It's not an aggressive bid, but it seems a fair one.''

Imperial would be biggest overseas acquisition for ONGC, which has as much as 6.8 billion barrels of oil equivalent in reserves. The explorer paid $1.7 billion to buy a stake in Exxon Mobil Corp.'s Sakhalin-I field in Russia and $785 million for a stake in the Greater Nile project in Sudan, both in 2003. State- run ONGC owns 20 percent of Sakhalin-1, which began pumping oil in 2005 and produced 250,000 barrels a day in February 2007.

Sinopec, Korea National

Su Shulin, the chairman of China Petroleum, known as Sinopec, said in Hong Kong today that the parent company is doing preliminary work on a bid for Imperial Energy. No formal offer from any other company has been received, Evgeniy Chuikov, a spokesman for Imperial Energy, said.

Korea National Oil Corp. has no interest in bidding for Imperial Energy, a KNOC official said today, declining to be named. Reuters reported on Aug. 13 that KNOC may be interested in acquiring the company. KNOC press spokesman Bae Ho Jun said today he had no comment.

ONGC shares gained 1.35 rupees, or 0.1 percent, to 1,015.9 rupees at the close in Mumbai trading. Imperial Energy declined 1.2 percent to 1,225 pence in London after reaching a seven-month high last week.

Proven Reserves

Imperial Energy has 450 million barrels of Russian registered reserves, according to a July company statement. The company is seeking to bring these figures closer in line with its estimates based on Society of Petroleum Engineers standards after the country's government raised questions about differences between the two.

The company, which operates primarily in the Siberian region of Tomsk, had 920 million barrels of oil equivalent of proven and probable reserves as of December 2007, according to an audit by DeGolyer and MacNaughton cited on Imperial Energy's Web site.

Drilling successes at the Kiev Eganskoye field on the east side of the Ob River came after the yearly DeGolyer and MacNaughton audit and will likely increase valuations when they are included in the next report, Artem Konchin, an oil and gas analyst at UniCredit Aton in Moscow, said Aug. 21.

Imperial Energy said in April it pumped 7,000 barrels a day in the first quarter. The company plans to produce 25,000 barrels of oil a day by the end of the year and expects to start output at the Kiev Eganskoye field in September.

ONGC reported a drop in output in the year through March, India's Oil Minister Murli Deora told lawmakers April 15. India estimates demand for oil will rise 62 percent over the next five years to 241 million tons a year, or 4.8 million barrels a day.

Key Supplier

``As India's energy consumption catches up with China, Russia wants to be at the forefront of securing access to the market,'' said Konchin. ``Whether it is for crude or for products, the more common projects there are, the more guarantees there are for Russia to be a key supplier to India.''

One state-controlled Russian energy company, either OAO Gazprom or OAO Rosneft, is likely to be involved in any transaction involving Imperial Energy, the Financial Times reported Aug. 22.

``Large Russian oil companies are looking to diversify downstream internationally,'' Renaissance Capital chief strategist David Aserkoff said today. ``They may be able to strike a deal where they could partner with a company like ONGC.''

Imperial Energy is far from being a strategic asset, Konchin said in response to concerns that the Russian state may insist on controlling the company.

Profile Booster

``It is a collection of small fields. It's nice because it is young and it may give your production profile a yearly boost instead of a decline,'' he said.

ONGC plans to invest a total 240 billion rupees ($6 billion) to boost output from its domestic and overseas fields, Chairman R.S. Sharma said in April. The company expects output of 8.5 million tons of oil and gas from overseas fields and production of 9 million tons in the year ending March 2009.

The explorer plans to produce about 20 million metric tons a year of oil equivalent by 2020 from its overseas fields from 8.76 million last year, Sharma said in June. The company has increased its overseas assets to 38 from a single one seven years ago, he said.

ONGC is bidding for Imperial Energy through its unit ONGC Videsh Ltd. The proposed transaction is subject to shareholder and regulatory approval.

To contact the reporters on this story: Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net; Stephen Bierman in Moscow at sbierman1@bloomberg.net.