19 January 2006

Royal Dutch Shell will today sign a far reaching jointventure agreement with India's most valuable company, the Oil and Natural Gas Corporation.

The memorandum of understanding covers potential joint operations, including finding, securing and producing oil and natural gas outside as well as inside India.

Shell, which is developing a liquefied natural gas terminal in India's western state of Gujarat, is keen to develop a presence in the country'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: "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. These 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.

The memorandum would also allow for the joint construction of 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 both fallen behind competitors in finding reserves. Shell has yet to recover from overstating its reserves, an affair that has left it chasing after peers such as ExxonMobil of the US and BP.

ONGC, meanwhile, is under pressure from thegovernment to secure the energy sources the country needs for economic development.

Mr Rahim said: "It is a case of both bringing something to the table. 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 requirements, the government may take some of the acreage away."

In October, BP announced a Dollars 3bn (Pounds 1.7bn) deal with Hindustan Petroleum, a partly state-owned Indian company to build oil refineries and petrol stations in India.

By Carola Hoyos and Jo Johnson

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