ONGC Videsh Ltd. agreed to buy an 8.4% interest in the North Caspian Sea production-sharing agreement, including Kashagan offshore oil field, from ConocoPhillips, subject to approvals from Kazakhstan government authorities and consortium partners waiving their priority rights.
ConocoPhillips expects proceeds of $5 billion. ONGC Videsh is a wholly owned subsidiary of Oil & Natural Gas Corp. Ltd.
Once completed, the acquisition would mark ONGC Videsh’s entry into Kashagan. The transaction is expected to close in first-half 2013. Consortium partners have first right of refusal and 60 days to exercise their preemption rights, ONGC Videsh executives have said.
ONGC is negotiating with oil and gas companies worldwide to rebuild its reserves because production is falling from its mature fields. In its annual report, ONGC outlined plans to invest $200 billion by 2030 to help double its production.
As of Sept. 30, the carrying value of the net assets related to ConocoPhillips’s interest in Kashagan was $5.5 billion. ConocoPhillips expects to record a $400 million aftertax impairment in the fourth quarter to reduce the carrying value to fair value.
ConocoPhillips said once this Kashagan deal closes, its 2012-13 disposition program will have yielded $7 billion. The company has set a target of $8-10 billion by Dec. 31, 2013.
The proposed sale of its Kashagan interest is part of ConocoPhillips’s plan to increase value for shareholders through focused capital investments, the company said.
Kashagan’s consortium partners are Eni SPA, Total SA, Royal Dutch Shell PLC, ExxonMobil Corp., and KazMunaiGaz, each with 16.81% interest. Inpex Corp. has 7.56% interest.
Kazakhstan has the second largest oil reserves and production among former Soviet Union republics after Russia, producing 1.6 million b/d in 2012, according to the US Energy Information Administration. Kazakhstan's natural gas production is also significant, reaching 1.3 tcf in 2010, but the vast majority of this gas is reinjected into oil fields to enhance production. The bulk of the country's reserves of both oil and gas, totaling 30 billion bbl and 85 tcf respectively, lie in three western Kazakhstan fields: Karachaganak, Kashagan, and Tengiz (OGJ, Oct. 22, 2012, p. 22).
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