ONGC to Buy $2.64 Billion Stake in Mozambique LNG

mozambique lngAug. 26 (Bloomberg) — ONGC Videsh Ltd., a unit of India’s biggest energy explorer Oil & Natural Gas Corp., agreed to pay $2.64 billion to buy a 10 percent stake in a Mozambique gas field from Anadarko Petroleum Corp.

The liquefied natural gas project “is strategically located to supply LNG to India at a competitive price,” New Delhi-based ONGC said today in statement on its website.

The acquisition, subject to approvals in Mozambique and India, will add to ONGC’s interest in the Rovuma Area 1 field, after it joined with Oil India Ltd. in June to buy a 10 percent stake for $2.5 billion from Videocon Industries Ltd. ONGC plans to spend 11 trillion rupees ($172 billion) by 2030 to add reserves in India and overseas and reverse a decline in output from aging fields at home.

“As a result of both transactions, OVL will own a significant interest in this strategic project in Mozambique,” ONGC’s unit said in the statement. “Area 1 has potential to become one of the world’s largest LNG projects and today’s acquisition marks a further significant step by OVL/ONGC group towards the energy security of our country.”

ONGC rose 2.6 percent to close at 276.70 rupees in Mumbai on Aug. 23, bringing gains this year to 3.3 percent. Anadarko gained 0.6 percent on Aug. 23, taking its gain for the year to 21 percent.

Anadarko, which will remain the operator of Area 1 with a 26.5 percent stake, said the deal “values our pre-transaction interest at more than $9.6 billion,” according to a separate statement from The Woodlands, Texas, based company. The company will use cash from the sale to boost development at its U.S. onshore projects as well as the Gulf of Mexico, according to the statement.

Leading Efforts

Anadarko and Eni SpA have been leading efforts to convert gas from the Indian Ocean fields in Mozambique to liquid and transport it to countries including India via tankers. Liquefied natural gas plants need billions of dollars in investment to chill the gas to a liquid and ship it using tankers. The East African country has become a prominent destination for energy investment, especially by Asian companies, as it looks to develop the largest natural-gas discovery in a decade.

At a planned capacity of 20 million tons annually, the Mozambique project could be the world’s largest LNG export site after Ras Laffan in Qatar, where Exxon Mobil Corp. is a partner.

Bank of America Merrill Lynch was the financial adviser to ONGC.

Spending Needed

The scale of the reserves means significant spending by the blocks’ owners will be needed to construct export infrastructure. Building the necessary rigs, pipelines and export terminals could require $50 billion in investment, Mozambique’s mining minister said last year.

The east African country, with a per capita gross domestic product lower than that of Rwanda, has limited experience managing large-scale resource projects and is still building key ports and railway links. Rio Tinto Group earlier this year wrote down 70 percent of its investment in Mozambique’s coal sector because of insufficient transport capacity and a drop in coal prices.

– Elisabeth Behrmann, Rakteem Katakey and Zijing Wu, Copyright 2013 Bloomberg.