Armed with a favourable legal opinion, state-owned Oil and Natural Gas Corp today upped the ante against Cairn Energy Plc, insisting that the UK-based firm needs its nod before stake sale to Vedanta Resources.
ONGC, which partners Cairn Energy's India unit in all its three producing properties and most of its seven exploration acreage, also wants to vet mining giant Vedanta's technical competence before allowing it to take over operations, the state-owned firm said in a letter to Cairn Energy which was released to stock exchanges.
Cairn Energy, which had on August 16 announced sale of its 40-51 per cent stake in the Indian unit to London-listed Vedanta Resources, has so far held that the $8.48 billion deal does not trigger ONGC's pre-emption rights.
When contacted, a Cairn Energy spokesperson said: "Cairn has always said that we will take the necessary consent and approvals, and work in a consensual way to progress this transaction."
ONGC took the opinion of the nation's second highest law officer, Solicitor General of India, who referred to the recent Supreme Court ruling in the gas dispute case between Ambani brothers to state that oil and gas assets are national resources and transfer of controlling interest needs government, as well as the partner's consent.
With SGI upholding its stand, ONGC today wrote to Cairn Energy Plc insisting that the Edinburgh-based firm submit agreement and other details of the deal with Vedanta and seek its consent before selling majority stake in Cairn India.
The letter also stated that the deal will trigger ONGC's pre-emption or the right of first refusal (ROFR).
Cairn, on its part, has been maintaining that the deal with Vedanta is a corporate transaction involving share sale and not a sale of interest in an asset like the giant Rajasthan block that would have triggered ONGC's ROFR.
Cairn had used the same corporate transaction logic to initially contest the government's right to approve the deal but with oil ministry standing firm, it relented and on September 9 applied for selective nod.
It made application for seven exploration acreage it won in New Exploration Licensing Policy (NELP) rounds while leaving out the three pre-NELP producing assets including the 6.5 billion barrels Rajasthan block, which is at the centre of the deal with Vedanta.
"We have viewed that, in accordance with the terms of the relevant agreements, the consent of ONGC would need to be sought for the proposed transaction, and ONGC would also have the option of exercising its pre-emptive rights in relation to the participating interests held by Cairn India," ONGC said.
ONGC said that the change of control of Cairn India and acquisition of majority stake by Vedanta would "amount to an effective assignment of participating interests held by Cairn India Ltd."
ONGC asked Cairn Energy to provide full details along with copies of the agreements and other arrangements entered into with Vedanta "and the details of proposed buyers financial strength, technical capability and past experience in the field of oil and gas."
"We have therefore viewed that, in accordance with the terms of relevant agreements, the consent of ONGC would need to be sought for the proposed transaction, and ONGC would also have the option of exercising its pre-emptive rights in relation to the participating interests held by Cairn India Ltd and/or its affiliates," it wrote.
Cairn India's main asset is the Rajasthan block that currently produces 1,25,000 barrels per day (bpd). At peak output of 2,40,000 bpd, it will account for one-fifth of the nation's domestic oil production.
ONGC has a 30 per cent interest in the Rajasthan block while Cairn India holds the remaining 70 per cent.
It also has 40 per cent interest in the Ravva oil and gas fields off the Andhra coast and 50 per cent in the Gauri and Lakshmi gas fields in the Cambay Basin, off the west coast.
It also has a stake in some of the seven exploration acreages held by Cairn India.
