The company plans to ship the fuel in its liquid form (LNG) to a proposed LNG terminal at Mangalore.
ONGC Videsh Ltd, the overseas arm of the state explorer, and Oil India Ltd (OIL) are together negotiating for the stake for which Videocon is reportedly seeking at least $3 billion, sources privy to the development said.
OVL-OIL combine, however, find Videocon's asking price too high and are in the processing of doing a due diligence.
Sources said ONGC is taking OIL along for acquisition of Videocon's 10% stake in Offshore Area 1 in Rovuma basin field and feels OIL alone will not be able to buy the stake.
Bharat Petroleum Corp Ltd (BPCL) also holds 10% stake in the block, which may hold as much as 70 trillion cubic feet of gas reserves.
Global energy giants like Royal Dutch Shell, BP Plc, ExxonMobil, Spain's Repsol and China's Sinopec also have found Videocon's asking price too high.
Sources said ONGC is also talking to some other firms, who have found gas reserves in Mozambique.
The gas found in Offshore Area 1 is to be turned into liquefied natural gas (LNG) and shipped to markets like India. The plant in the Cabo Delgado province in northern Mozambique is scheduled to start operating in 2018 with a capacity of 20 million tonne of LNG per year.
The capacity will be split evenly between operators of Offshore Area-1 and Italian giant Eni, which is developing gas found in the neighbouring Offshore Area 4.
ONGC is looking at importing LNG from Mozambique at the proposed import facility at Mangalore in Karnataka.
"We will be signing a MoU with BPCL for looking into the feasibility of setting up the LNG terminal at Mangalore," ONGC Chairman and Managing Director Sudhir Vasudeva told reporters.
Refusing to comment on Videocon's stake buy, he said the proposed LNG terminal will also include Mitsui of Japan as partner.
"After the MoU, we will do detailed feasibility studies based on which an investment decision will be taken," he said.
Earlier this week, Oil Minister M Veerappa Moily had stated that LNG from Mozambique may be imported at the planned LNG terminal at Mangalore to feed the southern states.
Vasudeva said domestic production will not even meet half of the projected demand of 473 million standard cubic meters per day by 2017 and the gap will have to be filled by imports.
ONGC, he said, had last year signed a MoU with Mitsui Group of Japan for setting up an LNG terminal and possible downstream opportunities like putting up a gas-based power plant.
Two major natural gas discoveries have so far been made in Offshore Area 1 of Mozambique's Rovuma Basin. The Prosperidade complex is estimated to hold between 17 and 30-plus Tcf of recoverable natural gas while separate and distinct Golfinho/Atum complex is estimated to hold 15-35 Tcf of recoverable natural gas resources.
Evaluation of a third discovery on the block, Tubarao, is ongoing with an appraisal well that is expected to be drilled in early 2013.
US energy major Anadarko is the operator of the Offshore Area 1 Block with a 36.5% interest while Mitsui E&P Mozambique Area 1 has 20%.
BPRL Ventures Mozambique BV (a unit of BPCL's exploration subsidiary Bharat PetroResources Ltd) and Videocon Mozambique Rovuma 1 Ltd have 10% stake each. PTT Exploration & Production Plc has 8.5%. The balance 15% is with Empressa Nacional de Hidrocarbonetos (ENH), the national oil company of Mozambique.
Eni is the operator of the Area 4 field with a 70% stake. Other partners in the Mozambique project are Portugues group Galp Energia, South Korean firm KOGAS, and Mozambique's ENH.