The government has told Cairn Energy that its deal with Anil Agarwal-promoted Vedanta Resources will go through only after a formal proposal to the government is made and all clearances are obtained.
The petroleum ministry is learnt to have told Cairn Energy chief executive Bill Gammell that a written proposal will be required for approval of Vedanta Resources' acquisition of a majority stake in subsidiary Cairn India.
"The petroleum ministry will examine the proposal and ensure that the deal meets all norms of the production sharing contract," said an official privy to discussions at the meeting.
Gammell arrived in Delhi early on Tuesday to meet Petroleum Minister Murli Deora. Petroleum Secretary S Sundareshan and Cairn India Managing Director Rahul Dhir were also present at the meeting.
Gammell is understood to have said his company would seek the government's endorsement and necessary consents. "The deal is good for Cairn Energy, Cairn India and Vedanta. We will work with the government, the state government and ONGC," Gammell told reporters after a second round of discussions with petroleum ministry officials in the evening.
Gammell also met with R S Sharma, chairman, ONGC, late in the evening. He told reporters that at the meeting, he explained details of the deal with Vedanta. Sharma said his company was examining and evaluating its implications. Cairn and ONGC have together signed production sharing contracts with the government for a number of oil and gas blocks in the country. ONGC's views are likely to weigh significantly on the government's decision on the issue.
Meanwhile, the market was rife with rumours that government-controlled Oil & Natural Gas Corporation (ONGC) and Mukesh Ambani's Reliance Industries Ltd (RIL) would make a counter offer for the Cairn India stake. ONGC is sitting on '22,384-crore and RIL on '18,231-crore cash reserves. Neither company commented on the rumour.
Sector analysts said RIL would have already examined the buyout and withdrawn from any possible deal as the valuation was very high. One analyst told Business Standard: "RIL is looking at de-risking its business and that means looking beyond India. Besides, RIL is investing more in alternative sources of energy rather than conventional sources. It must not have found the Cairn India deal attractive enough to be a part of it. Had RIL bought over Cairn India, it would not have paid the kind of price Vedanta has," said a Mumbai-based analyst with a domestic brokerage firm.
ONGC, Cairn's partner in its three producing assets in India, including the Barmer block that has potential oil reserves of 6.5 billion barrels, is upset over the Edinburgh-based parent of Cairn India making good its investment and exiting just as production from the block completed one year. "We are examining the options available before us. We are not in a hurry to act. But we will not have a laidback approach to the issue," said a senior ONGC executive.
A senior Cairn executive said the company clarified to the government that the business was at a natural inflection point Cairn Energy has explored, discovered and started fast-track development at the Mangala block in Rajasthan, which is now producing more than 125,000 barrels of oil per day and "was now ready to hand over the reins for the next phase of growth".
The company also said it was not exiting entirely and would retain a significant minority stake that will enable it to benefit from future potential in India. "We will continue to work in partnership with the new majority owners to ensure a smooth transition. This transaction will allow Cairn India, as a leading oil and gas company, to chart out its future course independently, with an Indian group as the majority owner," said the executive.
Government-owned ONGC has a 30 per cent interest in Cairn's Rajasthan operations and has a working interest in the Ravva oil and gas field in the Krishna-Godavari Basin along with Videocon and Ravva Oil. There are concerns over Vedanta's acquisition of a majority stake in Cairn India given its lack of expertise in the exploration and production sector.
