Natural gas prices in Asia are currently three to four times higher than those in the US. Integration of US and Asian natural gas markets, particularly Indian market could mean huge cost savings for ONGC. While currently some regulatory issues exist, Indian Prime Minister Narendra Modi and President Barack Obama will meet in New Delhi on January 25 to discuss the possible options, with both being keen on solving the issues. Outcome of the talks could be the start of the biggest US-Asia gas collaboration in decades.
Recent low energy prices are helpful to India, who has been and will remain a net energy importer. As energy prices could rise in the future, India has to make some acquisitions to hedge themselves against higher energy prices in the future. Indian government has directed ONGC to seek such opportunities agressively, as they have their war chest intact.
Chesapeake Energy is a strong strategic target, given its recent sales and great balance sheet and diversification through two commodities, a good strategy in the given energy environment. The new management has improved the situation a lot – cut administrative expenses and capital spending, as well as de-leveraged through asset sales. Combined with improved cash flow and shale positioning, it’s a very attractive option for ONGC.
Jefferson Research mentioned last week, that Chesapeake’s balance sheet has taken a hit recently, given the rising liquidity issues. Operating efficiency has also a lot of room for improvement. Indian oil companies have had limited success so far when targeting overseas oil and gas assets, often being outbid by their Chinese counterparts. However, Chesapeake’s current position under the new management suits ONGC a lot better, given attractive returns accretion and reasonable free cash profile.
Taking into account the favorable polititcal and market conditions for cash rich national Exploration and Production companies, India`s Oil and Natural Gas Corporation could be already in talks with a North-American gas and oil company, with Chesapeake Energy is believed to be the target, according to industry experts.
