Financial Times: Shell signs broad business pact with India’s ONGC: Posted 19 January 2006

By Carola Hoyos in London and Jo Johnson in New Dehli

Royal Dutch Shell, Europe's second-largest energy group, on Thursday will sign a far-reaching joint venture agreement with Oil and Natural Gas Corporation, India's most valuable company.

The memorandum of understanding covers a sweeping canvas of potential joint operations, including finding, securing and producing oil and natural gas internationally, as well as a activities within India.

“It is an umbrella memorandum of understanding with an extremely broad horizon that spans upstream and products,” said ONGC. “ONGC provides the opportunity, Shell the expertise.”

The move is the latest by an oil major to invest in projects in Asia. In October, BP announced a $3bn deal with Hindustan Petroleum, a partly state-owned Indian company, to build oil refineries and petrol stations in India.

Shell, which is developing a large liquefied natural gas terminal in India’s western state of Gujarat, a flagship foreign direct investment, is keen to develop a presence in India’s retail fuels sector and has been given permission to market transportation fuels.

Saad Rahim, an analyst at PFC Energy, the Washington-based consultancy, said Shell’s tie-up with ONGC “clearly signals the intention that they are committed, at least in principle, to enter into a serious partnership. This is the first deal of its kind where you have a major international oil company and a major national oil company working across the spectrum of the oil industry.”

Within India, the agreement covers a comprehensive range of potential joint operations. They include bidding on exploration and production licences, finding ways to bring ONGC’s natural gas reserves to market, using Shell's advanced technology to squeeze more oil from older fields, and developing coal conversion technologies.

The memorandum would also allow for the joint construction oil refineries, petrochemical plants, product terminals and depots, the establishment of a bitumen business, supply of oil products, marine fuels and lubricants and co-operation to improve ONGC's health, environmental and safety procedures.

Shell and ONGC have fallen behind competitors in finding reserves. Shell has yet to recover from misstating its reserves, an affair that has left it chasing after peers such as ExxonMobil of the US and the UK's BP.

ONGC, meanwhile, is under pressure from the government to secure the energy sources the country needs for economic development. The Indian group has also lost out to Chinese state oil companies in almost every big exploration or production deal it has tried to secure.

Mr Rahim said: “It is a case of both of them bringing something to the table that the other needs. Shell is looking to improve its reserve picture, find new direction and differentiate itself from its competitors. For ONGC, which holds most of the prime oil and gas acreage in India, the worry is that if they don't live up to the government's requirement, the government may take some of the acreage away.”

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