RUSSIA - Feb. 10 - Indian Firm Buys Into Sakhalin-1 JV.

The Indian state-owned ONGC signs an agreement with state-owned Rosneft buying half the latter's 40% stake in the Sakhalin-1 oil and gas E&P venture in the Far East. The deal involves an investment of over $1.5 bn in the next five years. ONGC is also to find financing for future investment commitments for both it and Rosneft's remaining 20% stake. Sakhalin-1 is led by ExxonMobil (30%) with Japan's Sodeco consortium (30%) (The deal follows months of negotiations, boosted by a visit by Pres. Putin to India last year which focused on economic as well as political ties between the two historically-allied countries. It represents an important boost to foreign direct investment into Russia. It clears the way for the development of one of the country's more significant oil and gas fields with an estimated full production level of 200,000 b/d. It also resolves an important stumbling block for the field's development, given the limited capacity of Rosneft to meet its financing commitments on viable terms.

Rosneft's investment so far has been in the range $500m-$700m, believed to be about the amount of cash paid in the first stage of the transaction to the company by ONGC. Sakhalin-1 is one of three important oil and gas fields developed in Russia with support of foreign investment using the terms of a long-term production sharing agreement. The terms are believed to provide the Russian state with about 40% of oil and gas extracted once the other partners have paid off their development costs over the next few years. Bankers to the deal claim it is the biggest merger and acquisition deal ever completed in the Russian Federation. JP Morgan advised ONGC and ABN Amro acted for Rosneft. BP is believed to have held preliminary discussions about purchasing the Rosneft stake, although ExxonMobil was happier not to have another major Western competitor).