Tells HC change of ownership in firm amounts to transfer of interest in the block.
The government has told the high court here that change of ownership in a company that has been awarded a participating interest in an oil and gas block amounts to the transfer of interest in the block.
This is the government stand in the case of Canoro Resources has implications for the multi-billion dollar Cairn-Vedanta deal, stuck till the government clears it.
Canoro had challenged the government’s termination of its production sharing contract (PSC) for an Assam oil block with Assam Company India Ltd (ACIL)
Additional solicitor general Mohan Parasaran, who appeared for the government, said if prior consent is required for the transfer of participating interest, then prior consent is also necessary for indirect transfer of the interest by virtue of change in the status of companies or their shareholding. It is settled law, that “what cannot be done directly, cannot be done indirectly”, he said.
SC’s Reliance ruling
Parasaran also cited the Reliance Industries Ltd versus Reliance Natural Resources Ltd case, where the Supreme Court held that natural resources in their native state, and up to the ‘delivery point’ (as defined in the PSC) is the property of the government and not of the operator. The operator cannot be said to have any vested interest to exploit the said natural resources separate from the terms of the PSC.
In his arguments today, Parasaran said contrary to Canoro’s claim, it is not a mere trading of shares in the open market. “The investment agreement dated April 16 between the petitioner and Mass Financial Corp involved a private placement of 24,798,000 common shares and rights offering. From a plain reading of the investment agreement, it can be inferred that the PI (proprietory interest) is also being transferred,” he argued.
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In August-end, the petroleum ministry had terminated the PSC between Canoro, a listed Canadian company, and ACIL for the oil block in Assam. This was the first termination of a PSC in the Indian oil and gas industry and at a time when Cairn Energy initiated a process to sell between a 40 and 51 per cent stake in subsidiary Cairn India, operator of the nation’s largest onland oilfield, to London-listed Vedanta for $6.65-8.48 billion. The government filed a petition against the injunction from termination sought by Canoro at the court.
The termination, the petroleum ministry claims, was justified due to a change in the shareholding pattern of Canoro. Canoro owned 60 per cent and was the block operator, with ACIL holding the balance 40 per cent. In April, Canoro raised Canadian $95 million through a mix of debt and equity from Barbados-based Mass Financial Corp, without the ‘required consent’ of the government.
Mass Financial initially got 18 per cent equity in Canoro but after the closure of the rights issue, it now holds 52.9 per cent of the oil block and has three out of five directors on the board.
The Amguri field in the Assam block produces about 1,000 barrels of oil equivalent per day (boe) and is estimated to have proven and probable reserve of oil condensate and gas of 12.287 million boe. In the case of Cairn India, the stakes are much higher, with average crude oil production from its Barmer block being 125,000 barrels a day.
Cairn is also operator of the Ravva oil and gas field and Cambay Basin (CB/OS-2) which produce 37,043 and 13,527 barrels of oil equivalent per day.