Varun Industries sells African oil block to PetroChina
December 28, 2011

Big ticket India-China deals are picking up pace, a year after China’s premier Wen Jiabao visited India to boost neighborly relations. On Tuesday, Indian trading house Varun Industries said it will sell a 51 percent stake in an on-shore oil block at Madagascar to Daqing Oilfield Co, a unit of state-run PetroChina, for US$150 million. The Indian company will continue to hold the remaining stake in the Hong Kong based joint venture which holds the asset. While Varun said it will continue to earn revenues from oil exploration at the block, further investments will be made by Daqing Oilfield Co.

Spread over 6,884 square kilometres holding prospective reserves of around 3,067 million barrels, the oil block will help Varun boost its capital by increasing liquidity, which it will use for other capex needs, in addition the SPV will also leverage the strong presence and strengths of Daqing Group to trade in the oil sector.

Daqing Oilfield, the operator of China’s biggest oilfield, which produced 40 million tonnes or 800,000 barrels per day (bpd) of crude oil in 2010 has targeted higher revenue from overseas assets, in line with the country’s hunt for overseas oil assets to fuel its fast-growing economy.

Considered one of the most prominent oil blocks in Madagascar, Varun plans to monetize its finds to aid growth and expansion plans in its other plants in India and Africa. Varun Industries is expanding flat steel production at its Rajasthan plant to 1.2 lakh tonnes per annum from 40,000 tpa at an investment of Rs 850 crore. The project, which is expected to be completed by 2013-14, will entail an investment of Rs 240 crore in the first phase. As part of backward integration, it will set up a 5 lakh tonne pig iron plant at an investment of Rs 2,100 crore at Bagalkot in Karnataka. The company has also lined up investment plans for developing the rare earth finds in Africa and also has a presence in gold mining.

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