State-owned Oil and Natural Gas Corporation (ONGC) today said it might on September 27 decide on giving its consent to UK's Cairn Energy Plc selling majority stake in Cairn India to London-listed Vedanta Resources.
ONGC, which holds stake in 8 out of the 10 oil and gas properties Cairn India has in the country, holds pre-emption or right of first refusal.
"We have to do valuation of the properties if ONGC should buyout Cairn India or not. A lot of work is being done... We are in the process of doing due diligence. The final call will be taken by the company board which is slated to meet next on September 27," ONGC Chairman and Managing Director AK Hazarika said.
Cairn Energy has agreed to accept all government conditions, including sharing royalty and paying cess on the all important Rajasthan oil block. Since, Cairn India is opposed to the riders, it has demanded that company shareholders should vote on acceptance of them. Cairn Energy with 52.11% stake and Vedanta's 28.5% are all set to overrule Cairn India and accept the conditions.
"They [Cairn Energy] have written to us, saying they are accepting the conditions and results of the shareholder vote will be announced by September 14. Thereafter, they will write to us for no-objection certificate and we will take it to the next board meeting," he said.
Thus far, Cairn Energy had rejected existence of any pre-emption rights of ONGC and its deal to sell 40% stake in Cairn India triggering them. But the government approval to the $9 billion deal made it conditional on Cairn getting a no-objection certificate from ONGC.
"NOC and right of first refusal are the same thing," Hazarika said, adding that the company board will have to decide if acquiring Cairn India at Rs 355 per share -- the price Vedanta is paying Cairn Energy -- was economical to it.
Cairn Energy Managing Director and CFO Jann Brown on August 16 wrote to Hazarika asking ONGC to begin the process of deciding on its consent so that NOC is granted by September 21.
Hazarika said Cairn had to first apply formally requesting waiver of the ROFR, or in other words a consent for its deal with Vedanta. That letter Cairn can write only after it accepts to make royalty payments on Rajasthan block cost recoverable and withdraw arbitration challenging Cairn India's liability to pay cess on its 30% stake in the fields.
Cairn India does not pay any royalty on its 70% interest in the Rajasthan fields. The royalty, as per the contract, is paid by ONGC, which got a 30% stake in the 6.5 billion barrel field for free. However, the royalty like other project cost and taxes, is recoverable from revenues earned from sale of oil.
