Cairn deal: ONGC asserts its right of first refusal
BSReporter / New Delhi Sep 01, 2010, 01:15 IST
Oil and Natural Gas Corporation (ONGC) isn’t going to just stand aside on the Cairn-Vedanta sale deal.
“We have a right of first refusal in case of some of the blocks, including Barmer, through our joint operating agreement,” R S Sharma, chairman and managing director, ONGC, told Business Standard.
In a recent communication, ONGC also asked Cairn Energy Plc to provide full details of the agreements and other arrangements signed with Cairn Energy Plc and its affiliates. ONGC has said the Cairn-Vedanta deal cannot go through without its consent.
The proposed deal, which could see the Vedanta group spending up to $9.6 billion to acquire 51-60 per cent in Cairn India (a subsidiary of Cairn Energy) through group companies Sesa Goa and Vedanta Resources, has not gone down well with ONGC. It is a partner with Cairn India in all its three producing blocks, besides five other blocks.
Cairn India is the operator of the Barmer block in Rajasthan. with a 70 per cent participating interest. ONGC, its joint venture (JV) partner, has 30 per cent participating interest. ONGC pays the entire royalty on the block and had been petitioning the government to reimburse it 70 per cent of the royalty amount that it should not be paying. Though ONGC had paid Rs 302 crore till June 2010, the amount is expected to rise significantly over the production life of the block.
When asked whether ONGC had raised the issue again with the government, Sharma did not comment.
Average crude oil production from Barmer is 120,000 barrels per day. Cairn India is also the operator of the Ravva oil and gas field and Cambay Basin (CB/OS-2), which produce 37,043 and 13,527 barrels of oil equivalent daily.
Informing the Bombay Stock Exchange and the National Stock Exchange, ONGC company secretary N K Sinha said, “ONGC has examined the relevant agreement signed by Cairn Energy Plc and its affiliates with the government of India and inter se with ONGC as one of the participating company(ies) in the various oil blocks/fields and other related documents.”
Why did Cairn Plc decide at all to sell its stake to Vedanta when Cairn India was beginning to do so very well? It doesn't make much Business sense at all.
There were reports earlier about ONGC disputing Cairn India's claims of higher oil and gas reserves, higher potential for production and so on which was giving a slightly negative impression about ONGC's opinions on Cairn India.
ONGC can surely assert its right of first refusal if it is really serious to take over the majority stake.
In the final analysis, the company's future is more important.
The success of future oil and gas explorations by the company is even more important - especially from the county's needs perspective.
If Reliance and Cairn could succeed at so many places, in such a short time, why not ONGC?
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