IndianOil, Oil India in talks with Essar to buy 20% each in Myanmar gas block
New Delhi   24-Aug-2010

State-owned oil companies IndianOil and Oil India are in talks with the Mumbai-based Essar Group to pick up 20% each in a gas block in Myanmar that is estimated to have even bigger reserves than Reliance Industries’ KG-D6 fields as they seek to gain access to oil & gas assets across the world.

This shallow water gas block that the Essar group had acquired in 2005 has estimated 13 trillion cubic feet (tcf) gas reserves, larger than the 10.03 tcf reserves of RIL’s KG-D6 block.

In addition, Essar also own an onshore block in Myanmar and a consultant advising the two government-owned companies said Essar had approached them with a proposal to invest in both the blocks.

An oil ministry official said the companies were looking at the possibility of jointly picking a 40% stake in the gas block and had for the moment ruled out the option of acquiring a stake in the onshore block. The official added that the two companies had visited the Essar data room and conducted due diligence.

IOC and OIL spokesmen did not respond to ET’s queries. An Essar spokesman declined comment.

The Essar group holds the two Myanmar assets through an unlisted entity, Essar Exploration & Production South-East Asia.

Essar had submitted a commercial proposal to OIL and IOC in December last year. The preliminary reports of the technical team that visited the gas block was positive about its prospects and the consultant advising the two oil companies said this was followed up with a recent meeting with the seller to discuss the commercial aspects of the transaction. But the deal is yet to be finalised, said an OIL official.

IOC, which dominates domestic fuel retail business with over 50% market share, is aggressively pursuing upstream interests in India and abroad. It has seven oil and gas assets in Iran, Gabon, Nigeria and Yemen. As exploration and production (E&P) is not its core business area, it adopts a consortium approach in acquiring and developing oil and gas blocks. In most of cases, its lead partner is OIL.

Essar is the first Indian company to bag two oil and gas blocks in Myanmar in 2005. The company had signed a production sharing contract with the government of Myanmar in May 2005. The blocks are located between proven gas blocks and aligned along the regional corridor of gas discoveries south of Bangladesh, which includes the highly productive Sangu gas field in the country.

Essar has drilled one well each in the two blocks after 2D and 3D seismic surveys of the two field. The two fields are still at the exploratory stage and recoverable reserve estimates are yet to be certified, a technical person working inthe project said.