ONGC may have to pay USD 13 bn for 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 Plc's USD 8.48 billion deal to sell its majority stake in the company to Vedanta Resources.

At Rs 355 a share (the price at which Vedanta is acquiring Cairn Energy shares), Cairn India is valued at over Rs 67,355 crore or USD 14.6 billion. Almost 90 per cent of this value is because of the Rajasthan block that can produce 240,000 barrels of oil per day (12 million tons per annum). "Cairn India's stake in Rajasthan block will be valued at USD 13 billion," a source involved in the process said.

ONGC believes 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 USD 13 billion, he said.

But ONGC will have to make up its mind fast as it has time only till September 7 to decide. Vedanta's open offer to minority shareholders of Cairn India for acquisition of 20 per cent shares, puts September 7 as the cut off date for any rival offer, the source said. Also, as per UK takeover rules, Cairn Energy Plc has to seek shareholders' nod and other regulatory approvals for the sale before Vedanta's open offer opens on October 11.

"That means, it will have to publish a prospectus for the sale by mid-September and call Extraordinary General Meeting of shareholders by end September or early October," he said. A rival offer or a competitive bid like the one from ONGC would have to be made before the EGM so that it can then approach SEBI to stop Vedanta's open offer, the source said.

"To buy Cairn India's stake in Rajasthan block, it has to seek Board approval, appoint merchant bankers, seek Cabinet nod and make rival offer all in a month's time," he said. The source said the best deal for ONGC would be to seek operatorship or management control of the Rajasthan block in lieu of giving a go-ahead to the Cairn-Vedanta deal.

The Production Sharing Contract (PSC), 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.