ONGC Said to Seek Acquisition of Canadian Oil Sands (Update2)

March 25 (Bloomberg) -- Oil & Natural Gas Corp., India’s biggest energy explorer, is seeking to buy oil-sands assets in Canada, three people familiar with the matter said.

ONGC is currently evaluating the finances of a Canadian field, the people said, asking not to be identified because the discussions are preliminary. The explorer is considering buying an asset that can produce about 10,000 barrels a day of heavy oil, worth at least $1 billion, two of the people said.

India, planning a sovereign wealth fund to help companies bid for overseas energy assets, has asked state-run ONGC and Oil India Ltd. to make at least one acquisition each in the year starting April to meet demand in the world’s second-fastest growing major economy. Indian companies are competing for overseas energy resources with China, which spent a record $32 billion last year buying oil, coal and metals projects abroad.

“This fits into ONGC’s go-global strategy,” said Neil Beveridge, an energy analyst at Sanford C. Bernstein Ltd. in Hong Kong. “There are enormous reserves in Canada’s oil sands and volumes are large and this fits into the strategy to get oil to India.”

ONGC directed calls to ONGC Videsh Ltd., its overseas unit. R.S. Butola, managing director of ONGC Videsh, wasn’t immediately available for comment.

ONGC shares have gained 38 percent in the past year, compared with an 82 percent increase in the benchmark Sensitive Index. The stock declined 1.2 percent to 1,056.65 rupees in Mumbai trading.

Imperial, Gulfsands

ONGC had 127.4 billion rupees ($2.8 billion) of cash and short-term investments and net debt of 127.10 billion rupees as of March 2009, according to data compiled by Bloomberg. The company will have the capability to raise about $25 billion in 10 years, Chairman and Managing Director R.S. Sharma said March 15.

New Delhi-based ONGC bought Imperial Energy Plc for 1.4 billion pounds ($2.1 billion) last year in its biggest acquisition. The explorer won the rights to develop the Carabobo 1 heavy oil field in Venezuela in partnership with Oil India Ltd. and Indian Oil Corp. India’s cabinet approved $2.18 billion in spending by the Indian companies in the project last week.

Oil India and Indian Oil have bid to buy Gulfsands Petroleum Plc, which has assets in Syria, the Indian companies said March 23. The two companies offered 315 pence a share, Gulfsands said that day. The bid values the U.K. explorer at about 380 million pounds.

Conoco, Suncor

ConocoPhillips, the third-largest U.S. oil company, plans to shed its 9 percent stake in oil-sands producer Syncrude Canada Ltd. as part of a plan to sell $10 billion of assets in two years to cut debt, the company said in October.

Energy companies have begun to extract heavy oil from tar sands in countries such as Canada and Venezuela as advances in technology and higher crude prices make production feasible. Some have faced protests from environmental activists over the release of greenhouse gases from such projects.

Suncor Energy Inc, Devon Energy Corp., Exxon Mobil Corp., Husky Energy Inc, Total SA and Royal Dutch Shell Plc are among companies that operate oil-sands projects in Canada.

BP Plc took a stake this month in Value Creation Inc.’s Terre de Grace oil-sands block in Canada. PetroChina Co. agreed to pay C$1.9 billion ($1.8 billion) for a 60 percent stake in Athabasca Oil Sands Corp.’s MacKay River and Dover oil-sands projects in September last year.

ONGC produces almost 25 percent of the crude oil used by Asia’s third-largest energy-consuming nation and is seeking to diversify supplies and keep pace with India’s growing fuel needs.

The company plans to get the equivalent of 60 million metric tons of oil, or more than double its output in India, from overseas fields by 2025, according to the Web site of ONGC Videsh.

To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net.

Last Updated: March 25, 2010 07:26 EDT