Anil Agarwal’s Bid For Videocon Undervalues Ravva Oilfield Cash Flow?

Billionaire Anil Agarwal offered to acquire insolvent Videocon Industries Ltd. for an upfront cash payment of Rs 200 crore to lenders. While an appeals tribunal stayed the takeover after lenders objected to a steep haircut, the amount barely covers a single-year cash flow from Videocon's interest in the Ravva oilfield.Agarwal’s Volcan Group won the bid to acquire Videocon under India’s Insolvency and Bankruptcy Code for Rs 2,962 crore, bulk of that coming from a debenture issue and equity. The total value, however, is close to the liquidation amount and repays only 5% of the monies due to creditors.The Mumbai bench of the National Company Law Tribunal approved the resolution plan submitted by Twin Star Technologies Ltd., owned by Volcan Group, in early June. But not without expressing surprise that lenders accepted that value. Some of the creditors moved the National Company Law Appellate Tribunal, which stayed the transaction.The acquisition will add Videocon’s 25% participating interest to Volcan Group's existing 22.5% stake through Indian subsidiary Vedanta Ltd. in Ravva oilfield off India’s east coast. The consolidation of stake in Ravva is the primary interest in the Videocon acquisition, according to a Volcan statement.BloombergQuint spoke to former executives of Cairn India, taken over by Vedanta, and oil & gas analysts to understand the value of reserves and potential cash flows from Ravva. All of them spoke on the condition of anonymity to speak candidly..Ravva Oil Field Is Key Interest In Anil Agarwal’s Videocon Takeover. The Ravva BlockLocated in the Krishna-Godavari basin off the Andhra Pradesh coast, the oilfield is a mature shallow-water asset with depth 5 to 40 metres. It was discovered in 1987 by Oil and Natural Gas Corp. and production began in 1993.India opened Ravva and other oilfields for foreign investment in 1994 to boost the nation’s oil & gas output and attract better technology. The first 25-year production-sharing contract was signed in October 1994 and ended in October 2019. It was then extended by 10 years after increasing the government’s share in profit by 10% to around 70% of the realisation after accounting for operational expenses.Cairn India Ltd., now Vedanta, is the operator of the block. Other members of the consortium include Videocon, ONGC and Ravva Oil (Signapore) Pte..ReservesAccording to Videocon’s 2019 annual report, the operator of Ravva, or Vedanta, has an aggressive estimate of recovering more than 13 million barrels of oil equivalent, or a third of proven and probable, or 2P, reserves of 39 million boe.Actual output, however, is expected be lower because:The global average is about 15-20% of 2P reserves are recovered.The Ravva field produced 11.7 million boe a year since renewal of production-sharing contract in 2019, assuming 300 days of production and factoring in Covid led shutdowns and maintenance shutdowns.Production at Ravva spiked to 19,177 barrels of oil equivalent per day in FY21, according to exchange filings.But it fell in April-June quarter to an average of 14,662 boepd in FY22.And the output usually falls because of the natural life of the oilfield, Vedanta said in an exchange filing.RealisationThe net realisation is calculated after excluding operating expenses, the government’s profit share, royalty and cess.The cost of operations for the Ravva oilfield is around $6 a barrel, according to former executives cited earlier.The average oil price realisation for Vedanta fell to $43.8 a barrel of oil equivalent in FY21 from $58.8 a year earlier, according to its stock exchange disclosures. That’s because Brent crude declined to an average of $44.30 a barrel from $60.9 in the previous year. It rose to an average of $75.13 in April-June.Ravva crude is of sweet variety and is priced at close to Brent.So assuming:An average oil price realisation of $60.An output of about 15,000 boepd for seven years after which production is expected to steeply decline.Videocon’s share in revenue would be about Rs 158 crore a year or about Rs 1,100 crore over seven years, according to BloombergQuint’s calculation.And for every $5 (about Rs 370) jump in realisation, Videocon’s revenue from Ravva will rise Rs 102 crore a year..The resolution plan by Volcan arm Twin Star for Videocon includes:An upfront cash payment of Rs 200 crore to financial creditors to acquire 13 companies of Videocon group.The assenting financial creditors will receive 8% of equity holding in the new entity.The new company will issue non-convertible debentures of Rs 2,700 crore to financial creditors, carrying a coupon of 6.65% per annum.The NCDs are redeemable in five tranches starting the second year till sixth yearAccording to BloomberQuint’s calculations, the new entity will end up paying an interest of Rs 775 crore on NCDs.And it nowhere factors in Ravva cash flows.A spokesperson for Vedanta Group’s oil and gas division declined to comment over the phone. BloombergQuint awaits a response to an emailed query..Videocon Insolvency: Next Steps As Resolution Pends

Anil Agarwal’s Bid For Videocon Undervalues Ravva Oilfield Cash Flow?

Billionaire Anil Agarwal's offer barely covers a single-year cash flow from Videocon's interest in the Ravva oilfield.

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