Sinopec, OVL face off for UK's Imperial

The stage is being set for another India versus China clash for an energy asset.

ONGC Videsh Ltd (OVL), which is said to have bid for UK's Imperial Energy, may soon find a formidable rival in China Petroleum & Chemical Corporation (or Sinopec).

The Imperial Energy board on Monday said it has received "another approach" in relation to a possible cash offer.

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"There can be no certainty that any offer will ultimately be made," the company said.

Earlier on Sunday, UK's Sunday Telegraph reported that Imperial has allowed Sinopec to begin due diligence.

Last month the British company said it was in talks on a potential 1,290 pence a share cash offer, without identifying a possible bidder.

That approach was said to have been made by OVL.

Founded in 2004, Imperial is an independent oil and gas exploration company with holdings mainly in western Siberia and Kazakhstan.

It plans to produce 25,000 barrels of oil a day by the end of this year and has 450 million barrels of reserves at its fields in Russia.

The company pumped 7,000 barrels a day in the first quarter, it said in April.

Imperial "has a very material reserve base, all of which is oil," Richard Rose, an analyst at Oriel Securities Ltd, told Bloomberg.

An offer of 1,290 pence a share would be the "bare minimum for management to recommend a bid," Rose said.

At 1,290 pence, it would cost $2.6 billion or Rs 11,000 crore to fully buyout Imperial.

Rose values a takeover at 1,350 pence to 1,500 pence, meaning at the highest bid, it would cost a buyer $3 billion or Rs 12,700 crore.

Interestingly, OVL and Sinopec came together in September 2006 to buy a Colombian oil asset –- Omimex de Colombia –- which produces 20,000 barrels of oil a day and has gross proven reserves of over 300 million barrels.

Chinese oil firms has repeatedly beaten Indian peers to many an energy source in the last couple of years.

In January 2006, CNOOC Ltd, another Chinese oil giant, beat OVL to a 45% stake in the huge Akpo oilfield off Nigeria.

To be fair, the Indian government had held back OVL from investing, citing valuation and risk grounds.

Prior to that, Chinese firms outbid OVL in the race for PetroKazakhstan and Ecuador in 2005. Sinopec and ONGC "have been making strategic acquisitions outside their own countries and Russia is seen as a core area for them," said Rose of Oriel Securities, who advises buying Imperial Energy shares.

ONGC chairman R S Sharma couldn't be reached for comment.

Sharma said last month that ONGC was in talks about an acquisition, declining to name the target company.