Cairn cant sell stake without our consent,says ONGC

The state-owned firm owns 30 per cent in the 6.5 billion barrels Rajasthan block that is at the centre of Cairn Energy Plcs 8.48 billion deal to sell its majority stake in Cairn India to Vedanta Resources. Cairn India,62.37 per cent owned by Cairn Energy,is the operator of the block with a 70 per cent stake.

ONGC believes that by virtue of its stake in Rajasthan block,it has the pre-emption or right of first refusal to buy Cairn India in case the

companys ownership changed. But the Joint Operating Agreement between Cairn India and ONGC gives partners pre-emption rights in case of sale of interest by either parties in the block,but not in the case of corporate ownership change,which is what is happening in the Cairn-Vedanta deal.

If Cairn Energy had offloaded its stake in the stock market,like it did when it in the past couple of years sold as much as 14 per cent in Cairn India to Petronas of Malaysia,ONGC couldnt have done much,industry observers said. The state-owned firm did not do anything when the stake was sold to Petronas in two tranches. Upon exercising its pre-emption right,ONGC may end up paying between 12 to 13 billion at the Rs 355 a share price at which Vedanta is acquiring Cairn Energys shares in Cairn India. ONGC has examined the relevant agreements signed by Cairn Energy Plc and/ or its affiliates with government of India and inter-se with ONGC as one of the participating companies in the various oil blocks/fields and other related documents, Sinha wrote to Gammell today.

Based on this documentary examination,it is noted that ONGC has,inter-alia,pre-emptive rights in relation to Cairns participating interest under the various agreements with the government of India and ONGC and that Cairn Energy Plc and/ or its affiliates require consent of ONGC besides other governmental approvals to consummate the proposed transaction, he wrote.

ONGC requested full details along with copies of the agreements and other arrangements entered into between Cairn Enegy Plc and/or its affiliates and the proposed buyer. At Rs 355 a share,Cairn India is valued at over Rs 67,355 crore,or 14.6 billion. Almost 90 per cent of this value is because of the Rajasthan block that can produce 240,000 barrels of oil per day 12 million tonnes per annum. Cairn Indias stake in Rajasthan block will be valued at 13 billion, a source involved in the process said. ONGC believes that by virtue of holding 30 per cent in the Rajasthan block,it has the preemption or ROFR to buy Cairn India in case the companys ownership changed.