ONGC Videsh Ltd, wholly-owned subsidiary of ONGC, has agreed to buy a 15 per cent stake in Russian oil major Rosneft’s subsidiary, Vankorneft. Though neither firm disclosed the size of the deal, sources say it is estimated to be around $2 billion. 

Discussions on the deal had started a year ago, but gathered pace in the last three days. OVL says it expects to complete the deal by the middle of 2016.

“Such a short time between reaching the agreement and signing the document testifies to the high level of credibility between us and the Indian partners, which guarantees efficient joint work,” said Igor Sechin, President and Chairman of the Management Board of Rosneft.

The transaction will be completed upon obtaining the necessary regulatory and other key approvals, the companies said. 

Russian hurdles What has taken the companies this long is Russian law, which restrained OVL from getting its share of produce from the block. BusinessLine  had reported the development last December. Now, OVL is only getting a stake in the subsidiary but will not get a share of the oil and gas produced by the company.

In Russia, hydrocarbon assets are typically carved out into special purpose vehicles or companies. OVL will be acquiring an equity stake in the SPV, Vankorneft. To qualify for equity on the produce, the Indian firm would have required a 25 per cent stake in Vankorneft. 

As part of the deal, OVL will have two seats on the Board of Directors of Vankorneft. “Rosneft will create another company that will allow more efficient management of both Vankor field and other company’s licences in the region,” Rosneft said in a statement. 

Vankorneft is the operator of the Vankor field in Russia, the largest field to come into production in the country in 25 years.

The agreement on considering acquisition of a minority share in Vankorneft by OVL was reached on July 8 during the meeting in Ufa between Russian President Vladimir Putin and Prime Minister Narendra Modi.

Citi worked as the exclusive financial advisor whereas Dentons was the legal advisor to ONGC Videsh for this transaction. EY was the tax and accounting consultant.

The Vankor fields are located in the northern part of Eastern Siberia. As of January 1, 2015, the initial recoverable reserves have been estimated to be 476 million tonnes of oil and condensate and 173 billion cubic metres of gas. The acreage of the field is 447 sq. km. 

For Rosneft, this is the second merger and acquisition deal with an Indian firm this year. In July, Rosneft announced a deal to purchase a 49 per cent stake in the Shashi Ruia-owned Essar Oil.

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