Steel baron Lakshmi N Mittal will begin the due dilligence exercise to acquire a 50% stake in Prize Petroleum from January 2. State-owned HPCL owns 50% stake in Prize Petroleum while ICICI along with ICICI Ventures hold 45% and the balance 5% is held by HDFC.

The valuation of the FIs 50% stake is close to Rs 180 crore, which along with the premium is expected to bring in funds between Rs 200-250 crore. Mittal is just one of the contenders for acquiring the financial institutions stake in Prize, the others being Essar Oil, JaiPrakash Associates and L&T.

Essar Oil has completed the due diligence of Prize while Jai Prakash Associates and L&T are yet to confirm the dates for carrying out the exercise. HPCL has fixed the deadline of February 1 to complete the process of identifying a suitable strategic partner in Prize Petroleum.

Both ICICI and HDFC are not keen to infuse fresh funds in Prize Petroleum and have expressed their desire to exit. According to sources, Mittal is not happy with the idea of acquiring a 50% stake in Prize and has evinced interest in acquiring a larger chunk of equity in the company, which will give it management control.

Mittal is desperately looking for a vehicle to persue its E&P activities in India and has been on a look out for acquiring a mid-sized exploration firm. Other than Prize Petroleum, another company on Mittal?s radar is Cairn India Ltd.

Going by the current market cap of Cairn India, the company is valued close to $10 billion and Mittal will have to shell out nearly $7 billion to acquire the 69% interest of Cairn Energy of UK in Cairn India. This, sources said, is being considered as too high a price by the Mittals.

Cairn India?s assets include an oil field in Rajasthan, which is expected to produce 1.5 lakh barrels of oil per day from 2009. In addition, Cairn key assets in India include gas producing fields at Ravva in Block PKGM-1 (22.5 % interest) in the KG Basin and Lakshmi and Gauri fields in the Cambay basin offshore Block CB/OS-2 (40% working interest). Further, Cairn India has interest in a number of exploration blocks across India.

Prize Petroleum?s assets includes the Cluster-7 field of ONGC, where it plans to produce about 50,000 barrels of oil per day. Prize has also bagged two exploration blocks in fourth and sixth round of auction under NELP.

It also has a 10% stake in SR-ONN-2004/1 block in the Satpura-south Rewa basin, which won by Prize and Jai Prakash Associates in NELP-VI. In addition, Prize has 15 % in on land block CB-ONN-2002/3 in the Cambay basin (won under Nelp-6) along with GSPC (55%), Jubilant Enpro (20%) and GeoGlobal (10 %).

The LN Mittal group has recently acquired a 49% stake in HPCL?s Bhatinda refinery and also signed an MoU for another refinery in Vizag.

After acquiring Arcelor and emerging as the world?s largest steel producer, Mittal is now keen to increase its presence in the oil sector.

Mittal is not happy with the performance of its JV company with ONGC and hopes to have an independent firm for persuing its E&P business.