ONGC is reported to be examining the price of the proposed Cairn-Vedanta deal to decide if it can mount a counterbid, even as petroleum ministry officials said they had no knowledge of it. On Monday, as hectic parleys continued in and out of the ministry, reports emerged that the government wants the country?s largest public sector oil company to join hands with other oil PSUs?GAIL India and Oil India?to finance the counterbid for the $8.4-9.6 billion deal at which Vedanta Resources wants to buy up to 62.3% stake in Cairn India from its Edinburgh-based parent.
The moves are a fallout of the reported disquiet in the government about handing over national reserves to Vedanta while ONGC will still continue paying royalty as government-nominated licensee in the blocks being mined by Cairn India.
While ONGC has no stake in Cairn India, it is a partner in the consortium floated by the two companies to explore fields like the Barmer block in Rajasthan, which has become a cash cow. The issue is further complicated as the public sector company does not have the right to first refusal in the productive pre-Nelp blocks, but only for Nelp blocks. The Barmer block is a pre-Nelp block. Meanwhile, sources in Oil India said they have not yet been officially approached by ONGC to be a consortium partner.
RS Sharma, ONGC chairman & managing director said: ?The issues involved are complex. I have been maintaining a diligent silence on this. We are yet to crystallise our views.?
Responding to a query from FE on the reported plans by ONGC, OIL and Gail, petroleum minister Murli Deora said: ?These (the reports) are all rubbish. They (Cairn) has not yet written to us.? The ministry has asked Cairn to furnish details about the proposed stake sale.
Oil India, ONGC and Gail all have $3-billion cash reserves each.
Cairn Energy, the Scottish parent of the Indian venture has stake in 10 blocks in India, of which three?Ravva, Cambay and Barmer?are in production while the rest are still under exploration.
If ONGC has to make an offer, it would have to better the Vedanta offer. The government has signed a total of 27 production sharing contracts for pre-Nelp blocks, of which seven have either commercial discovery or in production. As per PSC provisions, ONGC is required to pay 100% royalty and also cess on entire production in some cases.
ONGC forked out as much as Rs 761 crore in 2008-09 toward its partners? liabilities in these blocks.
ONGC has projected its excess liability in the Barmer block to cross Rs 12,000 crore over the production life of the field at $60 a barrel price of crude oil in the international market. This projection was made by ONGC when the block was estimated to have peak production of 1,75,000 barrels a day from the field. Cairn has revised peak production potential of the block to 2,40,000 barrels a day since then.
?ONGC, OIL and GAIL may make a joint bid to counter Vedanta?s $8.48 billion offer for majority stake in Cairn India, and have already got $10 billion in loan commitments from international banks such as Deutsche Bank, Credit Suisse and UBS for the move,? a PTI report said.
Petroleum secretary S Sundareshan had told FE last week that the proposed Cairn Energy-Vedanta Resources deal needed ?prior written consent of the government of India.? He also said that before taking a call on the proposed deal, the government would study the production sharing contract of not only the Rajasthan-field, but also other fields that Cairn India operates, where ONGC has a stake.
Official sources also told FE that the government was quite displeased and concerned with the way Cairn announced an upwardly revised estimate of the potential of the Rajasthan field in March without the approval of the management committee for the field. Company officials maintain that Cairn had informed both ONGC and the DGH before making the announcement. Sources in public sector oil companies said there are precedents of the government rejecting the share sale proposals by operators.
