ConocoPhillips is to sell its 8.4 percent stake in Kazakh oil field Kashagan for about $5 billion to Oil and Natural Gas Corp , a state-run Indian group looking to boost production.
Kashagan, the world's biggest oilfield discovery since 1968, holds an estimated 30 billion barrels of oil-in-place, of which 8-12 billion are potentially recoverable, with first production expected next year.
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With ONGC's domestic output flat for years, India now buys nearly 80 percent of its oil needs and is the world's fourth-biggest oil importer.
ConocoPhillips, which has been shedding overseas assets to cut debt, said on Monday the book value of assets related to its Kashagan interest was about $5.5 billion as of September 30, and it would take an after-tax impairment of about $400 million. The deal was expected to close in the first half of 2013.
"(The) purchase price of $5 billion is at the high end of our prior expectation of $4-$5 billion," analysts at Simmons and Co said in a note to clients.
"This is a positive for ConocoPhillips as it marks important progress on their asset divestiture program, which is needed to support the capital program and dividend."
ONGC, India's fifth-biggest company by market value, has been investing to maintain output from its old fields and has capital spending plans of around 340 billion Indian rupees ($6.1 billion) this year and next. It is under pressure from the government to meet rising demand.
With Indian state companies having often lost out to China in bidding for global energy assets, the Kashagan acquisition is the largest ever for ONGC. It is also the biggest outbound deal from India since mobile phone operator Bharti Airtel bought mobile phone operations in Africa for $9 billion in 2010 from Kuwait-based Zain .
ONGC Videsh, the arm of ONGC that invests overseas, said the acquisition would likely add 1 million tonnes (20,000 barrels per day) to its annual production over 25 years, with its share of output significantly higher in later stages of development.
ONGC Videsh's production in the year to March was 8.7 million tonnes.
The deal comes as India pushes to diversify crude supplies away from Iran, which used to provide about 12 percent of the country's 3.5 million bpd or so of imports before sales were hit by western sanctions aimed at curbing Iran's nuclear ambitions.
It puts ONGC Videsh into what has been a fraught and expensive partnership between Kazakhstan and some of the world's biggest oil companies, which hope to use the departure of ConocoPhillips to gain greater operating control and extend their production-sharing agreements with the state beyond 2041.
Kazakhstan, home to 3 percent of the world's recoverable oil reserves and the largest former Soviet oil producer after Russia, has sought to revise deals struck with foreign energy companies in the lean post-Soviet years.
ConocoPhillips, which has been disposing of non-core overseas assets to cut debt and increase its exploration and dividend budgets, has already beaten its target of asset sales worth $20 billion by the end of 2012, including the sale of its stake in Lukoil , Russia's second-biggest oil producer.
Last month, Kazakh oil and gas minister Sauat Mynbayev said ConocoPhillips planned to sell its stake.
The ONGC deal is subject to government approvals as well as the pre-emption rights of Kazakhstan and other participants in the Kashagan field which is jointly controlled by state-run KazMunaiGas and six international companies, including Eni , ExxonMobil , Inpex Corp <1605.T>, Royal Dutch Shell , and Total .
ConocoPhillips stock was down 0.6 percent at $56.31 at 1705 GMT.
($1 = 55.5850 rupees)
(Additional reporting by Sumeet Chatterjee in MUMBAI, and Jo Winterbottom and Nidhi Verma in NEW DELHI; Editing by Maju Samuel and Dan Lalor)