ONGC to study Conoco’s U.S. shale assets as it seeks deal

Oil & Natural Gas Corp. (ONGC), India’s biggest energy explorer, will soon study investing in ConocoPhillips’s U.S. shale-gas assets and expects to strike a substantial deal, Chairman Sudhir Vasudeva said.

The plan stems from an agreement signed by the companies in Mumbai March 30 for developing shale resources in India and North America, and to explore for oil and gas off the South Asian nation’s eastern coast. State-owned ONGC aims to rival Reliance Industries Ltd. and Asian peers including PetroChina Co. and Cnooc Ltd. (883) in acquiring assets in North America, where gas sells for less than 15 percent of Asian benchmark prices.

“The idea is to get access to shale in the U.S.,” Vasudeva, 58, said in a telephone interview today. “Last week’s initial agreement is a platform that’ll allow us to do this.”

ONGC and ConocoPhillips (COP) will study data on each other’s fields as part of the agreement and reach specific accords in six months, Vasudea said.

“This is ONGC’s opportunity,” said Gagan Dixit, a Mumbai- based analyst at Quant Broking Pvt., which advises investors to sell the stock. “Everyone’s running to get a foothold in shale acreages in the U.S. and investing in Conoco’s fields in the U.S. will help ONGC get the necessary experience to expand elsewhere.”

ONGC gained 0.4 percent to close at 274.30 rupees in Mumbai. The stock has climbed 6.7 percent this year, compared with a 13 percent gain in the benchmark Sensitive Index.

Mapping Shale

India has started mapping its shale gas resources and will have exploration rules in place by 2013, Prime Minister Manmohan Singh said on March 23. Blocks will be auctioned next year after the policy, Oil Secretary G.C. Chaturvedi said Dec. 21.

Natural gas prices have declined 27 percent in New York this year after falling 32 percent in 2011. Prices dropped to a decade-low on March 30.

ONGC is close to an agreement to buy its first shale asset in the U.S. and plans to spend at least $1 billion on purchases, D.K.

Sarraf, managing director of overseas unit ONGC Videsh Ltd., said March 1. The explorer, based in New Delhi, will spend “as much as it takes” to purchase shale assets in the U.S., Vasudeva said today.

“There’s no point doing small piecemeal deals and we’d rather do a substantially big one,” he said. “We’re debt-free and raising money is not really a problem. We could go pretty high.”

Output Revival

The U.S. is poised for a revival of domestic oil production that may mirror a surge in natural-gas output from shale formations, ConocoPhillips Chief Executive Officer Jim Mulva said Jan. 18. The industry is returning to older producing areas to find petroleum liquids in shale and other so-called tight- rock formations, he said.

Gas trapped in shale rock wasn’t considered worth tapping before Houston billionaire George P. Mitchell pioneered new extraction techniques in the 1990s. The rock is broken up by injecting a mix of high-pressure water and chemicals in a process called hydraulic fracturing, or fracking, to release the gas.

ConocoPhillips has bought more than 100,000 acres in North American shale projects that are rich in petroleum liquids, taking its shale acquisitions to more than 500,000 acres in 2011, according to a statement that day.

“Getting into liquids rich gas plays is a natural progression and we want to get into that,” Vasudeva said.

The U.S. produced 96 billion cubic meters of gas in 2009, overtaking Russia as the world’s biggest producer. Output surged to 142 billion cubic meters in 2010, causing prices to slump. Cheniere Energy Inc. (LNG) and Freeport LNG Development LP are among companies that plan to liquefy and export U.S. gas.