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Enron deal: Unlock value for ONGC? - Views on News from Equitymaster
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  • Aug 31, 2001

    Enron deal: Unlock value for ONGC?

    Enron's India strategy seems to have turned sour. The company has been wanting to exit its oil upstream business for a while, but more so out of global rebalancing of its oil & gas assets. The Dabhol power project has sailed into rough waters. Further, the broad band initiative with Global Tele has been dropped.

    Shareholding pattern
    ONGC 40%
    RIL 30%
    Enron 30%
    Total 100%
    The company's presence in the oil upstream sector -- Panna-Mukta & Tapti fields -- was through an unincorporated joint venture (JV) with Oil & Natural Gas Corp. (ONGC) and Reliance Industries Ltd. (RIL). As per media reports, several of the domestic and international majors have been vying for the 30% stake, which is on offer. The suitors include Marathon, British Gas (BG), Unical, Indian Oil Ltd. (IOC), Hindustan Petroleum Corp. Ltd. (HPCL) and RIL. The bid by BG is believed to have been accepted for a sum of $340 m (Rs 16 bn). Enron, reportedly, was looking at $600 m from sale of asset but has settled for lower to expedite the process. The company does to want the sale to get encumbered by the negotiations with the Government in the Dabhol case.

    The offer from BG, however, is conditional to the operational rights being transferred to the company. ONGC has thrown a spanner into the works, so it seems, as the company had expressed its desire to the petroleum ministry for obtaining the operational rights on Enron's exit. ONGC has further argued that it is the discoverer of the fields and had reportedly bid $400 m for the stake.

    Some back of the envelope calculations to arrive at the valuation of the unincorporated JV and estimates on the implied value for ONGC equity shares.

    mmboe* Panna Mukta**
    Reserves FY99 FY2000 FY2001
    Oil 134.4 134.4 117.8
    Gas 75.6 75.6 66.2
    Reserve life 17.6 14.9 11.1
    Tapti **
    Gas reserve 597.0 651.6 605.7
    Reserve life 46.3 50.5 48.8
    Total reserves 807.0 861.6 789.7
    * m metric barrels of oil equivalent ** Estimates

    Enron: Wanting out
    Enron's stake Rs bn 16.0
    EV of unincorp. JV* Rs bn 53.4
    Total reserves bmboe 0.8
    Price / boe   67.6
    ONGC: Is there value?
    Reserves# bmboe 7.4
    EV Rs bn 499.8
    Debt** Rs bn 71.0
    Value of equity Rs bn 428.8
    No. of shares bn 1.4
    Value per share Rs 300.7
    CMP*** Rs 149.9
    P/E Ratio x 4.1
    ^ All numbers represent estimates
    * Enterprise value ** as on April '00 *** Current market price
    # Reserves assumed to be in proportion of contribution to production



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