ONGC, Sistema may soon merge assets in Russia

NEW DELHI: Oil and Natural Gas Corporation (ONGC) is scrutinising data of Russian blocks of theSistema group, preparatory to finalising a seven-month old proposal to merge their assets in Russia to create giant energy firm that will be 25% owned by Indian firm's overseas armONGC Videsh (OVL), two oil ministry officials said. They said Sistema was also studying data of OVL's Russian assets held by Imperial Energy.

"The valuation of companies will be ascertained after that," one official said, requesting anonymity.OVL acquired Imperial Energy in 2009 for $2.1 billion. OVL managing directorJoeman Thomas confirmed the development. "We have received data from Sistema very recently. It may take couple of months to analyse data before we take a decision," he told ET.

Last December, energy majors of two countries had announced a mega-merger of three companies - Bashneft, RussNeft and Imperial Energy - that would make ONGC a shareholder in Russian firms' annual oil production of 25 million tonnes, refining capacity of 20 million tonnes a year, and discovered oilfields Trebs and Titov. The merger is expected to bail out Imperial Energy that is struggling to be profitable due to high taxes imposed on foreign oil and gas in Russia.

Earlier, Thomas told reporters the company was expecting a tax relief from the Russian authorities. "So far, we have been able to manage operating profit of $15-16 per barrel before capex and opex (capital expenditure and operating expenditure)," he said. India is demanding exemption from mineral extraction tax and a 10-year tax holiday from export duty for Imperial Energy as its assets are located in difficult geographical terrain.

Russia provides tax relief to companies operating in similar geographical regions such as East Siberia. The proposed merger deal will also give ONGC an immediate access to the biggest discovered oilfields in Russia, Trebs and Titov, which India was eyeing for a long time. The fields have estimated 200 million tonnes recoverable reserves, equivalent to 35% of ONGC's total oil reserves. The deal is significant for India that imports 80% of the oil it consumes.

The deal, which does not involve any cash transaction, was announced in December 21, 2010, during the official visit of PresidentDmitry Medvedev to India. Sistema has 75% direct stake in Bashneft that produces 13 million tonnes of oil from fields in Russia.