ONGC, OVL pitted against Chinese soverign funds for foreign acquisitions

China's large state owned enterprises, backed by the money power of the Chinese sovereign wealth funds have been making huge global investments and acquisitions in the energy and minerals sector.

Armed with more than $2.4 trillion in foreign exchange reserves as of this month, China has supported its oil companies to make landmark overseas acquisitions since energy assets have fallen considerably due to the global economic downturn.

In September 2009, China had armed China National Petroleum Corporation (CNPC), parent of the state-run oil and natural gas giant PetroChina with a low-interest $30-billion state loan to fund overseas acquisitions, as it found depressed asset prices during the global economic downturn the right time for cheap acquisitions. (See: China arms CNPC with $30-billion loan for overseas acquisitions)

Although ONGC had envisaged interest in acquiring Swiss oil exploration firm Addax Petroleum, China moved exceptionally swiftly as it's second-largest oil company, Sinopec, a subsidiary of China Petrochemical Corporation, made a deal to acquire the oil explorer in June for $7.2 billion-the largest ever Chinese offshore acquisition. (See: Sinopec to acquire Addax Petroleum for $7.2 billion)

Again ONGC is fighting a bidding war since July 2009 to acquire a 75-per cent stake in YPF, the Argentine unit of the Spanish energy company Repsol, pitted against CNPC, which has teamed up with CNOOC to outbid ONGC with an offer reported to be between $13 billion to $14.5 billion

In December 2009, ONGC lost its bid to develop Iraq's giant Halfaya oilfield to a consortium led by a China National Petroleum, which under cut OVL's $1.76 per barrel bid. This was the second time that the state-run oil explorer lost a bid to CNPC in Iraq. (See: ONGC again loses bid for Iraqi oilfield to Chinese-led group)

Earlier, in the first round of Iraqi oil field auction in June, OVL, bidding along with Russia's Gazprom and TAPO, had lost the Zubair oilfield  for seeking a remuneration five times higher than the $1.90-$2 a barrel that Baghdad was willing to pay.

This month, ONGC lost a bid for an Algerian oil field in the Berkine Basin to a consortium led by a Chinese oil firm China's National Offshore Oil Corp (CNOOC), which had an association with PTTEP of Thailand. (See: ONGC loses Algerian oilfield bid to China's CNOOC-led consortium)

The Indian petroleum giant, which undertakes overseas businesses including stake acquisition through its foreign arm, ONGC Videsh (OVL), acquired 43 overseas oil and gas assets in six years and has added 255.01 million tonnes oil equivalent of reserves through acquisition of overseas assets since 2003-04.

If losing energy assets to China were not bad enough, ONGC Mittal Energy Ltd. and its consortium partners, Germany's Wintershall and Denmark's Maersk Oil have surrendered the Turkmenistan offshore exploration blocks in the Caspian Sea on finding out after initial prospecting to be not very attractive. (See: OEML consortium abandons Turkmenistan exploration block)

ONGC Mittal Energy Ltd is a joint venture between ONGC Videsh Ltd and LN Mittal's Mittal Investment Sarl.

In September 2009, a consortium of ONGC Videsh Ltd and its partners Indian Oil Corporation and Oil India Ltd had abandoned plans to develop the Farsi oil field in Iran after they found it commercially unviable primarily due to high sulphur content in the oil. (See: OVL consortium abandons plans to develop unviable Iran oilfield)

In December 2008, ONGC acquired the UK's Imperial energy in a $1.9 billion deal, (See: ONGC completes acquisition of Imperial Energy) but last year it has not made a single acquisition although the value of overseas energy assets had fallen rock bottom although OVL has a mandate of making overseas investments decisions on its own to the tune of Rs300 crore, but any amount over this would require the approval the Cabinet Committee on Economic Affairs.

In August, PetroChina agreed to acquire a 60-per cent stake in two planned Athabasca Oil Sands projects in Western Canada for $1.9 billion. (See: Petrochina buys 60 per cent stake in Canada's oilsands for $1.7 billion)

Some of China's significant acquisitions and investments overseas in 2009
Acquirer Target Value (US$) Country Industry Month Notes
Shenzhen Zhongjin Lingnan (China's third-largest zinc producer) Perilya Mining (zinc miner) $29.8 m Australia Metals February Acquired 51 % stake
Hunan Valin Iron & Steel (China's ninth-largest steel producer) Fortescue Metals Group (Australia's third largest producer of iron ore) $438 m Australia Iron ore February Acquired 9.79 % stake
China Minmetals OZ Minerals $1.21 b Australia Iron ore April Acquired most of the assets
China Nonferrous Metal Mining Group (State- owned metals and mineral trading company) Lynas Corp (rare-earths metals producer) $186 m Australia Metals April Took a majority stake
PetroChina (State-owned oil giant. No. 2 on the Fortune 500 list) Sinapore Petroleum Corporation $1.02 b Singapore Oil May Acquired a 45.5% stake from Keppel Corp
Haier Group (China's largest appliances company) Fisher & Paykel $29 m New Zealand Appliances May Acquired a 20% stake
Sichuan Tengzhong Heavy Industrial Machinery General Motors-Hummer brand $100 m (estimated price) US Automobile June Chinese regulator has voiced concern over the acquisition
Wuhan Iron & Steel (China's fourth biggest steelmaker) Consolidated Thompson Iron Mines Limited $240 m Canada Iron ore June Wuhan Iron & Steel acquired 19.9 % stake to gain access to iron ore
CIC (The $300 billion Chinese sovereign wealth fund Goodman Group (Australia's largest industrial property trust) $585 m Australia Real Estate June CIC and Goodman formed a partnership, with CIC receiving an 8% equity stake for an A$200M debt facility plus A$500M of convertible debt
CIC Blackstone Group (Asset management Company) $500 m US Financial June CIC increased investment in hedge fund unit
CIC Diageo PLC (UK beverages giant-maker of Johnnie Walker whisky) $365 m UK Beverages July CIC took 1.1% stake
Sinopec Group (China's second-largest oil company) Addax Petroleum $7.2 b Switzerland Oil July Acquired the Swiss oil explorer with significant assets in Africa & Iraq
CIC Teck Mining Company (Canada's largest diversified miner) $1.5B Canada Coal July Acquired a 17.2% stake
Yanzhou Coal Mining (China's fourth-biggest coal miner) Felix Resourses (producer of high-grade semi-soft coking coal, used by steelmakers $2.95 b Australia Coal August Took over the entire company
PetroChina Athabasca Oil Sands $1.9-b Canada Oil September Acquired 60% stake in two planned Canadian oil sands projects
(Ravi Kunder / )

(See: Petroleum ministry wants special fund for overseas acquisitions)