Despite royalty impact, Cairn stock gains more than ONGC

A day after the government gave conditional clearance to the Cairn-Vedanta deal while removing the royalty burden from ONGC, the market has given a thumbs-up to Cairn instead of ONGC. The government-owned company increased its market cap by Rs 2,011 crore, significantly lower to an increase of Rs 2,842 crore seen in Cairn’s market cap.

At the Bombay Stock Exchange, Cairn India gained 4.81 per cent during the day to close at Rs 325.70, thereby seeing a corresponding increase in its market cap. However, government-owned ONGC ended the day with a gain of just 0.82 per cent at Rs 276.30. Its market cap also saw a corresponding increase to Rs 236,388 crore.

According to the production sharing contract signed by Cairn India and its partner ONGC for the Barmer field with the petroleum ministry, ONGC was to pay full royalty on production. The block started commercial production in August 2009 and so far ONGC had paid full royalty, though it has a 30 per cent stake in the field and is entitled to 30 per cent output.

For the complete life-cycle of the field, ONGC would have paid a royalty of Rs 18,000 crore. With the government making royalty on Barmer ‘cost-recoverable’, ONGC is expected to save Rs around Rs 13,600 crore while Cairn India is expected to take a hit of around Rs 7,500 crore over the life of the field.