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Indian Oil Corporation, the country's largest refiner, has put up a war chest of $2 billion for acquiring a medium-sized foreign oil firm to set up its own exploration and production division.

On IOC's radar are firms like Niko Resources of Canada, Cairn Energy Plc, Tullow Oil and Premier Oil (all of UK) among others.

"A proposal for setting up an E&P subsidiary is listed for approval at the company's board meeting on April 28," sources said.

After the board approval, IOC, which commands 60 per cent of the petrol retail market in India and owns half of the 115 million tonnes refining capacity in the country, will go scouting for an E&P firm that will help it become a fully integrated company.

IOC aspires to acquire oil and gas fields through the subsidiary to cut dependence on imports to meet its crude oil requirement.

Sources said the move comes in the wake of government turning down the request for splitting the country's flagship overseas investment firm ONGC Videsh Ltd for accommodating IOC and gas firm GAIL India Ltd as partners.

"A subsidiary will not clash with government decision as OVL will continue to be the flagship acquisition vehicle in government-to-government deal while IOC's E&P division will venture into taking over private firm stakes," they said.

IOC is looking for a medium-sized foreign firm with expertise in oil and gas exploration and production. "The company wants the best of professionals to stand tall against OVL, the subsidiary of Oil and Natural Gas Corp," sources said.

Government had, last fiscal, also ruled out creating another OVL type firm with GAIL, IOC, Bharat Petroleum Corp Ltd and Oil India Ltd as promoters saying it didn't want two Indian companies to compete with each other for the same property.

It had asked IOC, GAIL and OIL to go with OVL as partners in future acquisitions of oil and gas fields abroad. While OVL was to have 40 per cent of equity oil abroad, GAIL and IOC were designated to take 25 per cent apiece and OIL the remaining 10 per cent.

IOC and GAIL had sought either sharing in the equity and participation in the OVL board or being allowed to set up their own overseas subsidiaries to fulfill their ambition of owning fields in oil-rich nations.

With domestic crude oil production of 33 million tonnes meeting only 30 per cent of the requirement, India is acquiring oil and gas fields abroad to attain energy security.

Sources said if India were to bridge the existing demand gap through equity oil alone, it would be required to attain production levels of nearly three million barrels per day from overseas acreages. This can be compared with 60,000 barrels per day currently available, which with the existing assets of OVL, may reach 240,000 barrels per day by 2010.

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