The fall in international oil prices notwithstanding, ONGC Videsh Ltd will not revise its pound 12.50 a share buyout of Imperial Energy Corp Plc as the acquisition priced UK-listed firm's in-place oil reserves at $2.5-3 per barrel.
"OVL has valued Imperial's 2P (proven and probable) oil and gas reserves at $2.5-3 per barrel and the acquisition even at current oil prices is enormously beneficial," said a source associated with the transaction.
Imperial 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. '2P' tag means a 50 per cent likelihood of recovery of the reserves.
Acquisition of Imperial will cost OVL, the overseas arm of state-run Oil and Natural Gas Corporation, about pound 1.4 billion or $2.1 billion at current exchange rates.
"OVL had the option of revising bid price but it is not considering doing so," he said. Crude oil prices were trading at $115-120 a barrel when OVL made the bid for Imperial in August. They are now around $50 per barrel and Imperial shares are at pound 10.71.
OVL has time till December 9 to make an offer to acquire all outstanding shares of Imperial. The offer will remain open for 28 days and OVL will take another 14 days thereafter to make payments to shareholders tendering their shares, he said.
All of the funding for the acquisition was in place. ONGC is lending most of the money to OVL at 6 per cent interest rate while USD one billion has been tied-up in bridge loan.
"Borrowings have become expense...they are charing Libor plus 3-4 per cent," the source said.
The Indian firm's plans to delist Imperial from the London Stock Exchange is 90 per cent of shareholders tender shares. "OVL wants Imperial to be delisted. It may re-list the company if and when it needs money," he said.
OVL, earlier this month, won Russian government approval for taking over Imperial, which has assets in Tomsk region of western Siberia.
Russia's Federal Anti-Monopoly Service granted approval in respect of the ownership of Russian entities by entities controlled by a foreign government. Government of India holds 74 per cent stake in ONGC.
Prior to this, FAS cleared the acquisition under anti-monopoly regulations and stated that Imperial's assets were not strategic.
Since July, Imperial is producing 11,000 barrels of oil per day. Output will reach 25,000 bpd by fiscal-end with 18 wells coming on stream. Production would rise to 35,000 bpd (about 1.75 million tons) by 2009-end.
The company also plans to start commercialising gas from 2010.
Imperial board on August 26 had agreed to takeover bid by Jarpeno Ltd, a wholly-owned subsidiary of OVL.