ONGC on Tuesday gave its consent for stake sale in Cairn India to Vedanta Resources, provided Cairn Energy, Vedanta and their affiliates enter a formal agreement with the PSU on royalty and cess conditions.
A decision to this effect was taken by the ONGC board here. Cairn Energy is selling 40 per cent stake in its Indian arm, Cairn India, for $6.5 billion to Vedanta Resources. The company has already sold 10 per cent holding in Cairn India to Vedanta and the remaining 30 per cent required ONGC's consent.
In a statement issued after the board meeting, ONGC said, “After detailed deliberations on pre-emptive rights and economic evaluation, and as Cairn has agreed to the two conditions relating to cost recovery of royalty and withdrawal of cess arbitration case in respect of RJ-ON-90/1 (Rajasthan oilfields)… Cairn's request may be agreed to, subject to Cairn, Vedanta and their affiliates executing a formal agreement with ONGC agreeing to the royalty and cess conditions.”
According to industry sources, signing of the agreement could be a mere formality depending on when ONGC sends the draft to Cairn and Vedanta.
The blocks
Cairn has 10 oil and gas blocks in India – three pre-NELP and seven NELP. Of the 10 blocks, ONGC is Cairn's partner in eight including the premium Rajasthan oilfields. Cairn India had sought No Objection Certificates (NOCs) from ONGC for blocks – RJ-ON-90/1, PR-OSN-2004/1 (Palar region), KG-ONN-2003/1 (Krishna-Godavari Basin), KK-DWN-2004/1 (Kerala-Konkan region) and KG-DWN-98/2.
However, NOCs were not sought for Ravva and CB-OS/2 (Cambay Basin) blocks. Besides, the two partners have recently relinquished one NELP block in the Gujarat-Saurashtra Basin.
Subsequent to its shareholders' nod on September 14 accepting the pre-conditions laid down by the Government for the stake sale deal, Cairn India wrote to ONGC seeking NOCs. ONGC, while evaluating Cairn's request for the proposed transaction and its option of exercising pre-emptive rights, carried out its valuation with the help of SBI Capital Markets Ltd.
On June 30, Government gave its nod to the deal with certain riders including making royalty paid for Rajasthan oilfields cost recoverable and withdrawal of arbitration cases by Cairn India. At present, Cairn Energy holds 52.2 per cent and Vedanta and its Group companies have 28.4 per cent stake in Cairn India.