Cairn Energy's decision to sell majority stake in Cairn India to Vedanta will not trigger pre-emption rights of its Indian partner ONGC, as the deal was just a shareholder transaction and not sale of interest in a particular oilfield, ONGC has been informed.
Even though ONGC informed the stock exchanges today that it has sent a reminder to Cairn Energy on non-receipt of response to its queries on the deal with Vedanta, the Edinburgh-based firm had on September 10 sent a detailed reply to points raised by the state-owned firm.
Laying bare the details of the deal to sell between 40 and 51 per cent stake in Cairn India to Vedanta Resources, Cairn Energy said the transaction was a change of shares at corporate level and does not trigger pre-emption rights by partners such as ONGC in fields like the Rajasthan oilfield.
Partners had the right to buy each others stake (called the pre-emption or the right of first refusal) in case one of them wants to exit, but in the Cairn-Vedanta deal, Cairn India will continue to hold the stake and operate the Rajasthan oilfields.
Cairn India has 70 per cent interest in 6.5 billion barrels Rajasthan oilfields besides holding stakes in two other producing fields and seven exploration blocks.
"The Transaction is a sale of shares in Cairn India Ltd, rather than an assignment of any Participating Interest under the various Production Sharing Contracts and Joint Operating Agreements. We believe that the various pre-emption rights under each of the (field specific) JOAs only apply when there is an assignment, by a party to that PSC, of part or all of that party’s Participating Interest," Cairn Energy’s Legal and Commercial Director Simon Thomson wrote to ONGC.
ONGC had on August 30 written to Cairn Energy Plc chief executive Bill Gammell saying the Edinburgh-based firm required "consent of ONGC besides other governmental approvals to consummate the proposed" sale to London-listed Vedanta.
It is believed that by virtue of its 30 per cent stake in Rajasthan block, it has the pre-emption right to buy Cairn India in case the company's ownership changed.
"However in this case, as the contract with Vedanta Resources Plc is at shareholder level of Cairn India involving sale of shares – there is no change to the Participating Interest in any of the PSCs to which the Cairn India Group is party. Consequently, under the terms of the relevant PSCs and JOAs, no pre-emptive right or requirement for ONGC consent, as claimed (by ONGC), is triggered by the transaction," Cairn Energy said.
