Oil and Natural Gas Corporation (ONGC) may have to shell out $13 billion if it were to exercise its pre-emption or right of first refusal (RoFR) to buy Cairn India in the giant Rajasthan block.
Cairn India holds 70 per cent operator interest in the 6.5 billion barrels Rajasthan block that is at the centre of its parent, Cairn Energy's $8.48-billion deal to sell its majority stake in the company to Vedanta Resources.
At Rs.355 a share, Cairn India is valued at over Rs.67,355 crore or $14.6 billion. Almost 90 per cent of this value is because of the Rajasthan block that can produce 2.40 lakh barrels of oil a day. “Cairn India's stake in Rajasthan block will be valued at around $13 billion,'' official sources said.
ONGC is of the view that by virtue of holding 30 per cent in the Rajasthan block, it has the pre-emption or RoFR to buy Cairn India in case the company's ownership changed.
If it has objections to the Cairn Energy-Vedanta deal, it will have to seek to buyout Cairn India in the Rajasthan block by making a higher offer that would work out to $13 billion and that also before September 7 deadline, the official added.
Another view in ONGC is to seek operator-ship or management control of the Rajasthan block in lieu of giving a go-ahead to the Cairn-Vedanta deal.
The production sharing contract, which Cairn has signed with the government for the Rajasthan block, provides for explicit government approval only in case of a party selling its interest in the block, but does not make the nod mandatory in case of change of ownership at corporate level.
The joint operating agreement between Cairn India and ONGC gives partners pre-emption rights in case of sale of interest by either parties but not in case of corporate ownership change.
Cairn maintains that the Vedanta deal was a controlling stake transfer and not an asset transfer which would have triggered a government approval.
However, the Petroleum and Natural Gas Ministry maintains that since the production sharing contracts for some of the Cairn other blocks have provision for prior consent, the whole deal is contingent on government approval.
