ONGC May Buy Imperial Energy for $2.58 Billion

By Archana Chaudhary and Stephen Bierman
More Photos/Details

Aug. 26 (Bloomberg) -- Oil & Natural Gas Corp., India's state-run exploration company, may buy Imperial Energy Plc for 1.4 billion pounds ($2.58 billion) to tap Siberian deposits and make up for dwindling output at home.

ONGC made a preliminary offer of 1,250 pence a share, according to Imperial, which said a further announcement ``is expected later today.'' ONGC Chairman R.S. Sharma declined to comment when contacted by telephone from New Delhi.

``ONGC seems to be in a reasonable position in this deal,'' Tony Regan, a consultant with Nexant Inc., said by phone from Singapore. ``But the Chinese can move very quickly when they have to. They're dangerous competitors.''

Chinese companies have outbid Indian rivals as the world's two most populous nations compete for energy assets. India, the second-fastest growing major economy after China, hasn't increased production at home, where output from three-decade-old fields is declining. Su Shulin, the chairman of China Petroleum & Chemical Corp., known as Sinopec, said in Hong Kong today that the parent company is doing preliminary work on a bid for Imperial Energy.

Indian explorers are 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. The South Asian nation imports more than three-quarters of its oil requirements. ONGC reported a drop in output in the year through March, India's Oil Minister Murli Deora told lawmakers April 15.

Shares Decline

The Indian explorer's shares fell 10.55 rupees, or 1 percent, to 1,004 rupees in Mumbai at 1:45 p.m. local time. Imperial Energy declined 2.3 percent to 1,212 pence in London after reaching a seven-month high last week.

``Investors will await more news on potential competition from China,'' JPMorgan Chase & Co. analysts Andrey Gromadin and Nadia Kazakova of JPMorgan said in a research note today. ``Market participants will likely wait for a bidding war to emerge between ONGC and Sinopec.''

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's Web site.

Increased Valuations

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 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.

One of the state-controlled Russian energy companies, either OAO Gazprom or OAO Rosneft, is also likely to be involved in any transaction, 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.''

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