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India's state oil companies intend to press ahead with plans to buy stakes in Canada's oil sands and believe they will not run afoul of tougher Canadian rules on foreign ownership of the sector.
A consortium of Oil and Natural Gas Corp, Oil India Ltd and refiner Indian Oil Corp is among three bidders shortlisted to buy stakes in Canadian oil sands owned by ConocoPhillips. The assets could be worth up to $5 billion.
"We are very much in race for Conoco's assets," an official at one of the Indian consortium partners told Reuters, declining to be identified. The consortium submitted its bid in July.
"Our deal will not be affected as our understanding of the new rule is that JV stake sale or non-controlling stake sale are welcomed by Canada. However complete takeover will be approved as an exception," he added.
On Friday, Canada approved a $15.1 billion bid by China's CNOOC for Nexen and a $5.3 billion takeover of Progress Energy by Malaysia's Petronas, but shut the door on similar deals in the future.
Prime Minister Stephen Harper said Canada would not deliver control of the country's oil sands -- the world's third-largest reserves of crude -- to another government.
The tougher new approach restricts state-owned enterprises to minority stakes in Canadian enterprises except in "exceptional cirsumstances".
"Our understanding is the restriction would apply only in the case of transactions at the corporate level and not at the asset level," said a resources banker with a leading U.S. bank in India, declining to be identified.
The ONGC-led consortium has not asked for any clarification yet on the new rule, the official said.
T.K. Ananth Kumar, director of finance at Oil India Ltd, one of the consortium partners, said the group would be discussing the development with bankers.
"Getting into unconventional energy is important for us. We want to get into this if the returns are good, that is why we have agreed to partner," he told Reuters.
SEARCH FOR ASSETS
Rising energy demand in India and stagnant domestic output have made the country the world's fourth-biggest crude importer.
Western sanctions squeezing Iran, once India's second-biggest supplier, have added urgency to New Delhi's quest to secure additional energy sources.
India's state oil companies, tasked with scouting for oil and gas assets abroad to meet rising demand in the nearly $2 trillion economy, have moved with uncharacteristic speed in recent months to secure interests overseas.
Last month, ONGC Videsh, the overseas arm of state-run ONGC, agreed to pay about $5 billion for ConocoPhillips' 8.4 percent share of the Kashagan field in Kazakhstan, the world's largest oilfield discovery in four decades -- which could boost its output by about 16 percent within a year.
Earlier this year, it also agreed to pay $1 billion for a small stake in the Azeri, Chirag and Guneshli (ACG) group of oil fields in Azerbaijan and a stake in an associated pipeline.
State-run GAIL India is also considering buying liquefied natural gas (LNG) assets in Canada, Peru, and Trinidad put up for sale by Spain's Repsol.
The recent spate of expenditure could, however, hinder ONGC's immediate efforts to make large-size deals such as the one for Conoco's Canada assets, analysts said.
"Because ONGC has just announced the Kashagan deal, it (the Canada deal) may be too much for them to take on quickly. There may not be such big deals for next 6-8 months," said Dayanand Mittal, an oil and gas sector analyst at Mumbai's Ambit Capital.
"The IRR (internal rate of return) will be lower versus conventional oil-and-gas assets since capital expenditure is significantly higher," he added.