In what could act as a dampener to the Cairn Energy plc stake sale to Anil Aggarwal-owned Vedanta Resources, State-owned Oil and Natural Gas Corporation (ONGC) on Monday asserted that the U.K.-based company cannot sell a majority stake without its consent.
The company based its claim on preemptive rights in oilfields like Rajasthan, where it is an equity partner with Cairn India.
In a letter to Cairn Energy Chief Executive Bill Gammell, ONGC Company Secretary N. K. Sinha sought details of the deal, stating that the Edinburgh-based firm required ‘consent of ONGC' besides other governmental approvals to consummate the proposed sale of up to 51 per cent stake in Cairn India to London-listed Vedanta.
ONGC owns 30 per cent in the Rajasthan block that is at the centre of Cairn Energy's $8.48 billion deal to sell its majority stake in Cairn India to Vedanta Resources. It believes that by virtue of its stake in Rajasthan block, it has the preemption or right of first refusal to buy Cairn India in case the company's ownership changed.
“ONGC has examined the relevant agreements signed by Cairn Energy plc and/or its affiliates with the Central Government and inter-se with ONGC as one of the participating companies in the various oil blocks/fields and other related documents,” Mr. Sinha wrote in his letter.
Furthermore, he said “Based on this documentary examination, it is noted that ONGC has, inter-alia, pre-emptive rights in relation to Cairn's participating interest under the various agreements with the government of India and ONGC and that Cairn Energy plc and/or its affiliates require consent of ONGC besides other governmental approvals to consummate the proposed transaction.” Cairn Energy maintains that the Vedanta deal was a controlling stake transfer and not an asset transfer, which would have required a government approval. However, the Petroleum and Natural Gas Ministry maintains that since the production sharing contracts for some of Cairn's other blocks have a provision for prior consent, the whole deal is contingent on government approval.
