STATE-OWNED oil behemoth ONGC’s whollyowned subsidiary ONGC Videsh (OVL) has agreed to buy the UK-based Imperial Energy (IEC). If the deal goes through, OVL will gain access to rich oilfields in the Western Siberian region of Russia besides adding significantly to its reserve base.
IEM commenced commercial production of crude oil in November 2007. However, the company incurred an operating loss of $39 million in 2007 due to high exploration expenditure. To satisfy its investment needs over the next two years, the company has mopped up $191 million by way of a convertible bonds issue in December 2007 and $600 million through a rights issue in May 2008.
OVL has agreed to pay nearly GBP1.4 billion ($2.58 billion) for acquiring IEC’s 102.24 million equity shares of 2.5 cents each and outstanding convertible bonds. The deal values equity shares of the company, which holds petroleum exploring assets in Russia and Kazaksthan, at GBP12.50. The company holds a 75% stake through a joint venture in an exploration block in Kazakstan.
IEC – listed on the London Stock Exchange – was floated in 2004 and in a short time amassed over 920 million barrels of oil and oil equivalent gas (O&OEG) reserves primarily located in the Tomsk region in Russia.
IEC reached a production level of 10,000 barrels per day (bpd) by end-2007, but it slipped to around 7,000 bpd during the quarter ended March 2008 due to some technical snags. By the end of 2007, the company had 20 vertical and five horizontal wells drilled. Going forward, it plans to add another 69 vertical production wells in 2008 to take the number of wells to 89. It has also set a target of 25,000 bpd by the end of 2008 and 35,000 bpd by 2009-end.
Assuming that IEC is be able to achieve its production targets and crude oil prices average at the current levels, the company will be able to generate EBITDA of Rs 2,300 crore in 2009. However, there is no clarity on the quality of crude oil and the price it will command, and the government’s share in the production. Hence, it is difficult to judge the valuation offered by OVL for IEC’s acquisition.
During 2007, IEC produced nearly 833,000 barrels of crude oil and generated a sales revenue of $20 million. The company is currently investing heavily in ramping up its assets and carrying out exploration work. IEC has lined up capex of $350 million in 2008 and $250 million in 2009 and is not expected to generate operating cashflows till early 2010. The managements of both companies have agreed upon the acquisition terms, but the deal is not fully done yet. Particularly, OVL will have to secure the requisite approvals from the governments of Russia and Kazakstan, which could take time. Some licences held by IEC are only exploration licences, which means OVL will have to secure production licences in case of a hydrocarbon discovery later. All in all, the deal is likely to generate value for ONGC only in the long-term.
IEM commenced commercial production of crude oil in November 2007. However, the company incurred an operating loss of $39 million in 2007 due to high exploration expenditure. To satisfy its investment needs over the next two years, the company has mopped up $191 million by way of a convertible bonds issue in December 2007 and $600 million through a rights issue in May 2008.
OVL has agreed to pay nearly GBP1.4 billion ($2.58 billion) for acquiring IEC’s 102.24 million equity shares of 2.5 cents each and outstanding convertible bonds. The deal values equity shares of the company, which holds petroleum exploring assets in Russia and Kazaksthan, at GBP12.50. The company holds a 75% stake through a joint venture in an exploration block in Kazakstan.
IEC – listed on the London Stock Exchange – was floated in 2004 and in a short time amassed over 920 million barrels of oil and oil equivalent gas (O&OEG) reserves primarily located in the Tomsk region in Russia.
IEC reached a production level of 10,000 barrels per day (bpd) by end-2007, but it slipped to around 7,000 bpd during the quarter ended March 2008 due to some technical snags. By the end of 2007, the company had 20 vertical and five horizontal wells drilled. Going forward, it plans to add another 69 vertical production wells in 2008 to take the number of wells to 89. It has also set a target of 25,000 bpd by the end of 2008 and 35,000 bpd by 2009-end.
Assuming that IEC is be able to achieve its production targets and crude oil prices average at the current levels, the company will be able to generate EBITDA of Rs 2,300 crore in 2009. However, there is no clarity on the quality of crude oil and the price it will command, and the government’s share in the production. Hence, it is difficult to judge the valuation offered by OVL for IEC’s acquisition.
During 2007, IEC produced nearly 833,000 barrels of crude oil and generated a sales revenue of $20 million. The company is currently investing heavily in ramping up its assets and carrying out exploration work. IEC has lined up capex of $350 million in 2008 and $250 million in 2009 and is not expected to generate operating cashflows till early 2010. The managements of both companies have agreed upon the acquisition terms, but the deal is not fully done yet. Particularly, OVL will have to secure the requisite approvals from the governments of Russia and Kazakstan, which could take time. Some licences held by IEC are only exploration licences, which means OVL will have to secure production licences in case of a hydrocarbon discovery later. All in all, the deal is likely to generate value for ONGC only in the long-term.
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