Indian Oil in talks to buy Petronas Canadian shale gas assets

State-owned Indian Oil Corp (IOC) is in early stage talks to buy a 10-per cent stake in the Canadian shale gas assets of Malaysian national oil company Petronas, two people with direct knowledge of the matter said.

Petronas has offered IOC a 10-per cent stake in its shale gas assets in northeast British Columbia, and a long-term LNG offtake at an attractive price from its Pacific Northwest LNG project in Canada's British Colombia province, one of the people said.

It is not known whether Petronas has approached other Indian state-owned energy companies like ONGC, Oil India, BPCL and GAIL.

But the petroleum ministry may not approve IOC doing the deal since it had a cash balance of Rs938 crore ($154 million) at end December 2012, and free reserves of over Rs49,000 crore. with borrowings of over Rs 94,000 crore ($15.48 billion).

Moreover, IOC, like other downstream petroleum marketing companies owned by the government, has been bleeding financially due to price underrecoveries from the subsidised sale of kerosene and diesel.

ONGC's overseas arm ONGC Videsh (OVL) recently teamed up with Oil India to buy Videocon Industries 10-per cent stake in the highly prolific Rovuma Area 1 offshore gas field in Mozambique for $2.48 billion. (See: OVL-OIL buying Videocon's stake in Mozambique's Rovuma for $2.48 bn)

But last week it lost out to China in buying US oil giant ConocoPhillips 8.33-per cent stake in the giant Kashagan oilfield in the Caspian Sea in Kazakhstan for $5 billion (See: Kazakh govt helps CNPC oust ONGC from ConocoPhillips stake deal) with national oil company KazMunaiGas opting to exercise its right to buy the stake in order to sell it later to state-owned China National Petroleum Corp.

But a consortium comprising of OVL, Oil India and IOC had in July 2012 tabled a binding offer for part of ConocoPhillips' Canadian oil sand assets worth around $5 billion.

The consortium, which is among the three short-listed bidders, have appointed Canadian investment bank TD Waterhouse as advisor for the transaction, and ConocoPhillips is still talking to the suitors.

Petronas' Canadian subsidiary, Petronas Carigali Canada Ltd, had acquired Calgary-based Progress Energy in December 2012 for $5.2 billion in a in a high-profile transaction that had been initially blocked by the Canadian government.

The deal gave it unconventional natural gas resources in northeast British Columbia and northwest Alberta. Petronas got approximately 900,000 net acres of Montney rights over its entire British Columbia and Alberta land base, making it one of the largest Montney land rights holders.

Three months after Canadian regulators approved the Petronas-Progress deal; Petronas sold 10-per cent stake in its Pacific Northwest LNG project and a 10-per cent stake in a shale gas field in the North Montney to Tokyo-based Japan Petroleum Exploration (Japex) for an undisclosed sum. (See: Japex to acquire 10% in Petronas Pacific Northwest LNG and a shale gas project in Canada)

Petronas, one of the world's largest producers and shippers of supercooled LNG fuel, needs money to fund its proposed $20 billion Pacific Northwest LNG project, which will liquefy and export natural gas produced by its gas fields in Montney region and northwest Alberta to energy starving Asian nations.

It is said to have already invested between $9 billion-$11 billion in the LNG project, comprising two plants with an annual capacity of 6 metric tons each.