India's state-owned ONGC Videsh has become the latest Asian company to strike a deal in the resource-rich East African region.
ONGC Videsh, the subsidiary that handles the offshore operations for Oil & Natural Gas Corp (ONGC) on Monday agreed to buy a 10% stake in a Mozambique gas field from New York-listed Anadarko Petroleum Corp for a cash price of $2.64 billion.
Asian companies have been competing to secure equity stakes in liquified natural gas (LNG) fields and, according to a person close to the situation, much of this will be sold into Asia, to offer a cheaper alternative to Australia's LNG. As a result, prices have been creeping up.
In June, Oil India and ONGC Videsh jointly agreed to buy a 10% stake in the same field for $2.47 billion from Videocon. Earlier this year, CNPC acquired Eni's block in an adjacent field for $4.2 billion. Last year, Thai company PTTEP bought Cove Energy, which held an 8.5% stake in the Mozambique field for $1.79 billion.
"There has been a heck of activity from this field in Mozambique -- it has driven a lot of the M&A activity," said one person close to the situation. "We expect the chase for LNG to continue -- as Asian companies want to secure equity and diversify their sources of LNG geographically," the person added.
The deal is struck at an interesting time for India. The Indian rupee has been rapidly depreciating and the government has been trying to rein in capital outflows. Earlier this month, it limited the foreign direct investments of Indian companies at 100% of their net worth, down from 400% previously. Companies that want to make foreign investments in excess of 100% of their net worth require approvals to do so.
Indian outbound M&A -- which has chalked up $8.5 billion of announced deals this year -- has largely been in the shadow of Chinese outbound M&A, which has amounted to $38.6 billion.
Clearly, however, securing energy remains a priority for the Indian government and its central bank exempted both state-owned oil companies - ONGC Videsh and Oil India - from the limits on foreign investment.
ONGC Videsh has big ambitions to grow its oil and gas production capacity overseas and it is expected to continue to be acquisitive. “ONGC Videsh produced 7.26 million tons of oil and gas during the fiscal year ended March 2013,” said DK Sarraf, managing director and chief executive of ONGC Videsh in an interview with FinanceAsia last week. “We plan to increase production to 20 million tons of oil and gas within the next five years and to 60 million tons by 2030,” he added.
Bank of America Merrill Lynch advised ONGC Videsh while Citi was the sellside advisor for Anadarko. The transaction is expected to close around the end of 2013, subject to government approvals.