Decision similar to Cairn-Vedanta case, to be legally tested now.
In what could set a precedent for oil sector deals in India, a Canadian energy company, Canoro Resources, has approached the high court here to challenge the recent government decision to terminate a production sharing contract (PSC) between it and another private company.
Canoro’s case is similar to Vedanta’s proposed acquisition of a controlling stake in Cairn India from Cairn Energy Plc. The deal has not gone down well with the ministry of petroleum and Cairn’s partner, Oil and Natural Gas Corporation (ONGC). Senior government officials told Business Standard that Canoro was required to take the ministry’s permission before the change of equity holding.
Though PSCs for different blocks are structured differently, the ministry is taking a similar stand in the Cairn-Vedanta deal. “We have asked Cairn to seek permission under various PSCs it has signed with the government for oil and gas blocks in the country,” said an official. Cairn India has 11 blocks in India, including the Barmer block in Rajasthan that has added about 18 per cent to India’s crude oil production of 674,000 barrels a day.
The petroleum ministry had last week terminated a contract entered between Canoro and Assam Company India Ltd (ACIL) for an oil block in Assam. It cited the PSC and said the decision was due to a change in the shareholding pattern of Canoro, a listed Canadian company. Canoro owned 60 per cent and was the block operator, with ACIL holding the balance 40 per cent.
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 120,000 barrels a day. Cairn is also operator of the Ravva oil and gas field and Cambay Basin (CB/OS-2) which produces 37,043 and 13,527 barrels of oil equivalent per day.
‘Our okay not there’
The ministry had on June 1 issued a showcause notice to Canoro for raising Canadian $95 million in April through a mix of debt and equity from Barbados-based Mass Financial Corp, without the “required consent” of the government. Mass 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.
“It has been noted with utmost concern that the change in shareholding of Canoro Resources Ltd and controlling relationship with Mass amounts to material change in the shareholdings in the company, for which Canoro Resources Ltd has not obtained prior consent of the Government, thereby violating the provisions of the PSC, in particular Article 29.2,” the ministry had said in the notice.
Canoro says the allegation is ‘materially incorrect’ and was ‘unsupportable by the language of the PSC’. The PSC was cancelled from August 30, in line with the requirement for an advance notice in this regard of at least 90 days.
Though the government so far has not issued any showcause notice to Cairn, officials said the ministry has informed market regulator Sebi about the provisions of various PSCs signed by Cairn. Vedanta group company Sesa Goa made an open offer for buying 20 per cent stake in Cairn India. The offer, scheduled to begin on October 11, would need Sebi approval.
The proposed deal that would see Vedanta spending up to $9.6 billion in acquiring 51-60 per cent in Cairn India saw the government asking Cairn for details of the deal. ONGC, a partner with Cairn India in all its three producing blocks, has also asserted its pre-emptive rights.
A Cairn India executive said “The participatory clause under the PSCs entered by the operating consortium of oil and gas blocks with the government is triggered only when one of the members decides to quit” and government permission was not required since it was only a corporate deal.
