OVL raises $1 billion debt to fund Vankor acquisition

Industry: Oil and Gas 2016-12-19

NEW DELHI: ONGCBSE -0.10 % Videsh Ltd (OVL) has raised USD 1 billion through a US dollar bonds issue to finance its acquisition of 15 percent stake in Russia’s second biggest oil field Vankor, its Managing Director Narendra K Verma said.

OVL, the overseas arm of state-owned Oil and Natural Gas Corp (ONGC), raised USD 600 million through a 10-year bond at a coupon rate of US treasury rate plus 2.20 per cent and another USD 400 million through a 5.5-year maturity bond at an interest rate of US treasury rate plus 1.75 percent, he said.

“It is one of the lowest cost funding rates in the current scenario,” he said.

The effective rate comes to 3.75 percent for USD 600 million bonds and 2.875 percent for USD 400 million papers.

The proceeds of the issue would go to refinance a USD 1.2 billion bridge loan the company had taken from a group of foreign banks to make payments for the USD 1.268 billion acquisition.

The bridge loan was taken in May this year at a highly competitive rate of about 1.3 percent. The interest rate is lower than 4.625 percent OVL had paid on a USD 2.23 billion 10-year bond issue in July 2014 to finance its Mozambique gas field acquisition.

OVL had in September last year struck a deal to buy 15 percent in the Russia’s second biggest oil field of Vankor from Rosneft for USD 1.268 billion.

In March this year, it signed an initial agreement to buy an additional 11 percent for USD 930 million.

Verma said that acquisition has been funded through a bridge loan and it too would be replaced by a long-term funding in due course.

Vankor, the largest field to have been discovered and brought into production in Russia in the last 25 years, is located in the northern part of Eastern Siberia.

As of January 1, 2015, the initial recoverable reserves in the Vankor field are estimated at 476 million tonnes of oil and condensate, and 173 billion cubic meters of gas.

Vankor is Russia’s second largest field by production and accounts for 4 percent of Russian output. The average daily production from the field is around 415,500 barrels per day of crude oil since acquisition and OVL’s share of daily oil production from Vankor (considering both the acquisitions) will be about 108,030 barrels a day.

Prior to the deal, Rosneft, Russia’s national oil company, held 100 percent stake in Vankorneft. This is the fourth biggest acquisition by OVL. It had in 2013 paid USD 4.125 billion for a 16 percent stake in Mozambique’s offshore Rovuma Area 1, which holds as much as 75 trillion cubic feet of gas reserves.

In 2009, it had bought Russia-focused Imperial Energy for USD 2.1 billion. Prior to that in 2001, it had paid USD 1.7 billion for a 20 percent interest in the Sakhalin-1 oil and gas field off Russia’s far eastern coast.