India mulling proposal to create one oil giant by merging state-run firms. [Representational Image]Reuters

The overseas arm of state-owned Oil and Natural Gas Corp. (ONGC) has bought a 15% stake in Vankorneft, a subsidiary of Russia's oil giant Rosneft.

ONGC Videsh Ltd (OVL) has reportedly paid $1.25 billion (Rs 8,250 crore) for a stake in Vankorneft, a source familiar with the development told Reuters.

"This will give an impulse to development of our partnership, probably in the other large-scale oil and gas upstream projects in the region," Livemint quoted Igor Sechin, chief executive officer (CEO) of Rosneft, as saying.

The deal is yet to receive a regulatory approval. The deal allows ONGC to have two directors on the Vankorneft's board, while Rosneft will retain control over the oil-producing operations.

OVL is estimated to receive nearly 3.5 million tonnes of oil annually as a result of the deal. The decision to buy stake in Vankorneft by ONGC Videsh was finalised on 8 July, 2015, at a meeting between the heads of the two countries -- India and Russia.

"The deal clearly shows ONGC is pushing forward to build a global portfolio in oil, which will be critical as India's demand continues to grow and oil imports accelerate," said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein and Co.,.

Vankorneft is a subsidiary set up by Rosneft in 2004 to operate the Vankor oil and gas field, which is estimated to have recoverable reserves of nearly 500 million tones. The production at the field was started in 2009.

Rosneft is also looking to offload its stake in Vankorneft further. The company is continuing its talk with China National Petroleum Corporation to sell stake.

The share prices of ONGC were down 2.2% to trade at Rs 224.30 on Friday on the Bombay Stock Exchange (BSE), paring little gains made earlier in the session.

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