ONGC may not get to use first right of refusal in Cairn deal

NEW DELHI: The government maintains that state-run Oil & Natural Gas Corp ( ONGC) has the first right of refusal in the $9.6-billion Cairn-Vedanta deal, but it will not allow the company to exercise this right as the price is very high, two officials directly involved in the matter said.

“It is true that ONGC has the pre-emptive right, but it makes no (business) sense to invest in an over-priced asset which will anyway remain in the country,” an official representing an economic department said requesting anonymity. ONGC says its consent is necessary for Vedanta to acquire control of Cairn India as it had “pre-emptive rights.” On August 30, the company shot the first letter to the stock exchanges asserting its pre-emptive rights which was immediately contested by Cairn.

Later, it wrote to Cairn on October 21 that its consent “would need to be sought for the proposed transaction and would also have the option of exercising its pre-emptive rights.” In the letter ONGC also demanded “details of proposed buyer’s (Vedanta) financial strength, technical capability and past experience in the oil and gas field”.

ONGC is partner of Cairn India in several blocks, including India’s largest oil producing onshore fields in Rajasthan.
The state-owned explorer’s main grouse has been that despite owning only a 30% stake in Cairn India’s main oil asset in Rajasthan, it has been paying all the royalty for the crude that the block produces.

ONGC said that the royalty outgo was one of the reasons for a 9% drop in its half-yearly profit. While announcing the result on October 28, ONGC chairman & managing director had said that company had paid `446 crore additional royalty for crude oil produced from Rajasthan fields on behalf of partner Cairn.

According to a 15-year old agreement between the government and the operator of Rajasthan fields, ONGC is paying 100% royalty even as it holds a 30% stake in the field. Operator Cairn India holds 70% interest in the field and does not pay any royalty.