BPCL Covers Videocon’s Debt on Oil Block in Brazil

The Two Companies Formed a Joint Venture Incorporated IBV Brasil Petróleo Ltda to Acquire Encana Brasil Petróleo Ltd from Canadian Gas Producers EnCana

The state-owned Bharat Petroleum Corp Ltd (BPCL) was forced to pay for its defaulting partner, Videocon Industries Ltd, after relying on a rarely used model to acquire stakes in five oil blocks in Brazil, sources said.

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In September 2008, BPCL and Videocon Industries formed a joint venture incorporated IBV Brasil Petróleo Limitada to acquire Encana Brasil Petróleo for US$ 283 million.

Sources said that normally these acquisitions are made through unincorporated joint ventures, but BPCL opted to form an incorporated joint venture, which is organized as a separate and distinct legal entity. And the entire entity is considered defaulting if any of the partners do not pay their share of costs.

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With the bankrupt Videocon unable to pay its cash calls for the exploration and development of oil fields, the IBV consortium faced the possibility of a default and the risk of being expelled.

To save the day, BPCL injected US$ 53.98 million into the IBV in 2019-20, resulting in a 55.13 percent stake in the joint venture, sources with direct knowledge of the development said.

If BPCL had acquired the Brazilian blocks through an unincorporated joint venture, only Videocon would have been considered defaulting for not paying its share of costs. This pattern would not have affected BPCL.

Sources said that in a joint venture without legal personality – which is not constituted as a legal entity and is formed only by contract – BPCL would not have risked losing the block if the partner did not pay. BPCL’s stake would not have changed even if Videocon went into default.

However, in the model chosen by BPCL, the entire joint venture ran the risk of being labeled as defaulting and losing the oil fields.

When contacted, a senior BPCL official said that the company’s increase in stake in IBV is temporary and will return to the previous agreement as soon as the company taking over Videocon pays for the default.

Videocon’s Oil and Gas Assets Are Being Auctioned Off to Recover Defaulted Bank Loans

BPCL holds 12 offshore blocks through its subsidiary Bharat PetroResources Ltd (BPRL). Five of these oil blocks are in Brazil, two in the United Arab Emirates, and one each in Mozambique, Indonesia, Australia, Israel, and Timor-Leste.

The IBV Brasil Petróleo Limitada (incorporated in Brazil), a joint venture company of BPRL Ventures BV, and Videocon Energy Brazil Ltd, renounced the subsidiaries of BPRL and Videocon Industries Limited, respectively, holding stakes in 5 blocks across 3 concessions in Brazil.

In the Sergipe Alagoas concession (BM-SEAL-11), which currently consists of three blocks, Petrobras of Brazil is the operator with a 60 percent stake, and IBV holds the remaining 40 percent.

During the exploration periods, four oil and gas discoveries – Barra, Farfan, Cumbe, and Barra – were made in this concession.

In the Potiguar concession (BM-POT-16), Petrobras is the operator with a 30 percent stake, the other partners are IBV (20 percent), Petrogal (20 percent), and BP (30 percent).

In the Campos concession (BM-C-30), BP with 35.7 percent is the operator, and the other partners are IBV Brasil (35.7 percent) and Total from France (28.6 percent).

Source: Energy World