Azernews.Az

Hess Corp agreed to sell its 2.72 percent stake in the large Azeri, Chirag and Gunashli (ACG) group of oil fields in Azerbaijan as well as its 2.36 percent stake in an associated pipeline to India's ONGC for $1 billion.

Hess said on Saturday that ONGC's foreign investment arm ONGC Videsh will buy the assets in a deal it expects to close in the first quarter of 2013. It is subject to Indian and other regulatory approvals.

Hess said the sale was part of an asset sale program under which it is trimming mature assets, as well as stakes in projects in which it only holds a small working interest. It said it has announced nearly $2 billion in sales this year.

Rothschild advised ONGC Videsh on the sale.

The BP-operated ACG oilfields are in the Caspian Sea around 100 kilometers east of the Azerbaijani capital Baku.

ACG accounts for the lion's share of Azeri production and is the main source of crude for Baku-Tbilisi-Ceyhan pipeline, which runs via Georgia to the Mediterranean port of Ceyhan in Turkey.

In August, The BP-led Azerbaijan International Operating Company (AIOC) reported that output at the oilfields over the first six months of 2012 declined to levels not seen since 2007, producing 16.8 million tons or 682,154 barrels per day (bpd) in January-June compared to 19 million tons a year earlier.

Local officials attributed the output fall at the project, which has total reserves of over 6.5 billion barrels, to repair work on some drilling platforms and refineries.

The country expects its oil output to rise in 2013 thanks to the start of the next stage in ACG's development.

For 2012, about $708 million in operating expenditure and $2.516 billion in capital expenditure are expected to be spent on ACG activities.

The acquisition of an interest in the ACG oil project and the BTC pipeline by ONGC is of significant strategic importance to the country's energy security, the company said in its statement.

According to the company, the acquisition would bring 9 percent additional proven reserves to ONGC Videsh Limited portfolio.

"The acquisition would mark ONGC Videsh's entry into oil-rich Azerbaijan and is consistent with its stated strategic objective of adding high quality international assets to its existing E&P portfolio," the ONGC statement said.

ONGC has recently formulated its Perspective Plan - 2030 envisaging that the oil and gas production of ONGC Videsh Limited would increase from the current 8.75 million tons of oil equivalent (MMTOE) to 20 MMTOE by 2018 and 60 MMTOE by 2030.

According to the managing director of ONGC, Sudhir Vasudeva, the current transaction is the first step towards achieving this goal. The production from this asset in 2011-12 was about 15 percent of ONGC Videsh Limited crude oil production during the same period.

Prior to the acquisition, ACG participating interests were: BP (35.83%), Azerbaijan's state oil company Socar (11.65%), Chevron (11.27%), Inpex (10.96%), Statoil (8.56%), ExxonMobil (8%), TPAO (6.75%), Itochu (4.3%), and Hess (2.72%).