ONGC Formal Bid For Imperial Approved by Indian Government Despite Falling Oil Price
The Congress led Central Government today allowed state owned ONGC Videsh to make its £ 1.4 billion Rs. 10,150 crore bid for 100 per cent equity in UK listed Imperial Energy formal. The Government has extended its permission for the acquisition of the energy company which has numerous fields in Russia despite falling crude oil prices and a valuation which resulted from a price of a barrel far higher than it is today.
Imperial Energy explores for oil in Russia’s Siberia region and had the equivalent of 920 million barrels of proven and probable oil reserves as on December 2007, according to an audit by DeGolyer & MacNaughton.
In August ONGC bid 1,250 pence a share for Imperial Energy, a U.K.-based explorer operating in Siberia and must post its formal bid by midnight today under U.K. rules. Yesterday Imperial Energy fell the most in eight months in London trading after Britain’s Takeover Panel rejected a request from ONGC for more time to consider buying the company.
The 1,250 pence a share bid gave the company a 10 per cent internal rate of return (IRR) taking crude at US$ 121 a barrel. With the Rupee depreciating by 20 per cent against the dollar and crude falling to under US$ 50 a barrel the IRR has come down to between 3-4 per cent.
ONGC Chairman R.S. Sharma has justified the proposed transaction, saying oil will rebound to $100 a barrel, more than twice the current level. Crude traded at $43.71 in New York yesterday, compared with $116.27 on Aug. 26, when ONGC agreed to buy Imperial.
“People are generally concerned that ONGC could lower its bid because the oil price has declined substantially since it was first announced,” an ING Groep NV analyst in London, told Bloomberg yesterday. Oil has declined 62 percent since the New Delhi-based explorer offered to buy Imperial Energy in August.
The Economic Times in its report said that a meeting of the Cabinet Committee on Economic Affairs was specially convened this morning to consider OVL’s Imperial bid Prime Minister Manmohan Singh chaired the meeting that had just one agenda and lasted one-and-half hours. The results of the meeting were ambiguous with Petroleum Minister Murli Deora, emerging from the meeting and declining to comment, only saying: “We will let you know in due course.”. The report then went on to cite an unnamed source which said that the CCEA had approved the offer.
The UK’s takeover panel has already rejected parent company ONGC’s plea for more time to make a formal offer for acquisition of Imperial Energy Corp Plc. Yesterday’s ruling followed a challenge by ONGC to an earlier decision by the panel’s executive that no extension could be granted. ONGC said it doesn’t intend to appeal.
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