India Inc went on a shopping spree in the UK last week.While OVL agreed to buy Imperial Energy, Infosys gobbled up Axon. ETIG ploughed through the numbers to see how the deals stack up for Corporate India
IN ITS bid to expand its exploration asset base and secure future growth in production, ONGC agreed to acquire UK-based Imperial Energy (IEC) through its wholly-owned subsidiary, ONGC Videsh (OVL). The $2.58-billion deal has been accepted by the IEC management and is likely to be finalised over the next couple of months. Although the deal appears to be fairly valued, it will take another couple of years for the company to fully benefit from it.
IEC is currently a loss-making company, but its hydrocarbon reserves made it an acquisition target. It had reported a net loss of $43 million in ’07 on sales of just $20 million. And considering its heavy capital expenditure on exploration activities over the next couple of years, it is not likely to earn positive cash flows till ’10.
By end ’07, IEC held proven and probable (2P) hydrocarbon reserves estimated at 920 million barrels of oil equivalent in 17 oil blocks in Russia and one block in Kazakhstan.
Nearly 95% of these reserves are in the form of crude oil with just 5% of natural gas, which will favour OVL due to higher crude prices.
IEC has drawn up ambitious exploration plans to boost its production. It will spend over $600 million over the next two years to raise production to 25,000 bpd by end-’08 and 35,000 bpd by end-’09. Just to put things in perspective, a 25,000-bpd production level will generate Rs 4,500 crore of annual revenues at the current crude price of $115 per barrel. The company has set a production target of 80,000 bpd by the end of ’11.
With this buy, ONGC will gain a second foothold in Russia — particularly in the resource-rich Siberian region — after its 20% stake in Sakhalin project through OVL.
Considering ONGC’s current production at around 983,000 bpd of oil equivalent, this acquisition amounts to an addition of around 2.5% to its next year’s production.
Financing the acquisition won’t be much of a concern, considering the fact that ONGC is carrying over Rs 16,000 crore in cash.
At present, there is no clarity on various important matters that will affect ONGC’s net realisation on sale of crude oil from these fields. However, in ’07, IEC’s net average realisation stood at $33.35, which is nearly half of the global prices at $66 and is a definite cause of concern.
Similarly, among its various oil fields, IEC holds nine exploration licences, while only four licences allow it production rights. Thus, the exploration successes do not mean automatic right to production.
All these exploration licences will expire within the next 18 months and ONGC will have to secure the production licences separately if the exploration results in new discoveries.
IN ITS bid to expand its exploration asset base and secure future growth in production, ONGC agreed to acquire UK-based Imperial Energy (IEC) through its wholly-owned subsidiary, ONGC Videsh (OVL). The $2.58-billion deal has been accepted by the IEC management and is likely to be finalised over the next couple of months. Although the deal appears to be fairly valued, it will take another couple of years for the company to fully benefit from it.
IEC is currently a loss-making company, but its hydrocarbon reserves made it an acquisition target. It had reported a net loss of $43 million in ’07 on sales of just $20 million. And considering its heavy capital expenditure on exploration activities over the next couple of years, it is not likely to earn positive cash flows till ’10.
By end ’07, IEC held proven and probable (2P) hydrocarbon reserves estimated at 920 million barrels of oil equivalent in 17 oil blocks in Russia and one block in Kazakhstan.
Nearly 95% of these reserves are in the form of crude oil with just 5% of natural gas, which will favour OVL due to higher crude prices.
IEC has drawn up ambitious exploration plans to boost its production. It will spend over $600 million over the next two years to raise production to 25,000 bpd by end-’08 and 35,000 bpd by end-’09. Just to put things in perspective, a 25,000-bpd production level will generate Rs 4,500 crore of annual revenues at the current crude price of $115 per barrel. The company has set a production target of 80,000 bpd by the end of ’11.
With this buy, ONGC will gain a second foothold in Russia — particularly in the resource-rich Siberian region — after its 20% stake in Sakhalin project through OVL.
Considering ONGC’s current production at around 983,000 bpd of oil equivalent, this acquisition amounts to an addition of around 2.5% to its next year’s production.
Financing the acquisition won’t be much of a concern, considering the fact that ONGC is carrying over Rs 16,000 crore in cash.
At present, there is no clarity on various important matters that will affect ONGC’s net realisation on sale of crude oil from these fields. However, in ’07, IEC’s net average realisation stood at $33.35, which is nearly half of the global prices at $66 and is a definite cause of concern.
Similarly, among its various oil fields, IEC holds nine exploration licences, while only four licences allow it production rights. Thus, the exploration successes do not mean automatic right to production.
All these exploration licences will expire within the next 18 months and ONGC will have to secure the production licences separately if the exploration results in new discoveries.
No comments:
Post a Comment