New Delhi: UK’s Cairn Energy has reluctantly acquiesced to the government’s view that prior consent is required for the sale of a majority stake in its Indian subsidiary to Vedanta Resources, but still maintains that partner Oil and Natural Gas Corp’s (ONGC) nod is not required.
In a 23 November letter sent through subsidiary companies holding a participating interest in the three producing blocks -- which were previously omitted in the oil explorer’s applications seeking government consent for the Vedanta deal -- Cairn said ONGC’s preemption rights were not triggered by the $9.6 billion deal.
“We must make expressly clear that we are acceding to the Government of India’s position (that the proposed transaction needs their consent), whilst we fully reserve our position regarding any rights available to our joint venture partner (ONGC),” a Cairn India subsidiary said in one of the letters seeking clearance for the transfer of stake in the Barmer oilfields in Rajasthan.
“Nothing in this letter may be construed as an acceptance of any claim to a requirement for consent or preemption rights of ONGC arising from the proposed transaction,” it said.
ONGC partners Cairn in all three of the UK-based energy company’s producing properties in the country, besides several exploration blocks, by virtue of which it claims to have preemption rights over the Vedanta deal.
Cairn had previously applied for permission only with respect to its seven exploration acreages in India, while leaving out the three producing properties.
However, the oil ministry told Cairn that it would have to apply for separate approvals for all 10 assets before the government could consider granting consent to the deal.
On 23 November, Cairn made three separate applications seeking clearance for transfer of its majority stake in the Barmer oilfields in Rajasthan, the eastern offshore Ravva oil and gas fields and the Cambay fields off the West Coast to Vedanta.
“Even after acceding to the government of India’s position on this matter, our view and that of the senior counsel remains that the requirement for government consent does not trigger any rights of joint venture partners,” the applications stated.
In the covering letter accompanying the three applications, Cairn Energy chief executive Bill Gammell said the company and its subsidiaries “are fully committed to working in partnership with the Ministry of Petroleum and Natural Gas in effecting the proposed transaction.”
Cairn Energy had on 16 August announced the sale of a 40 to 51% stake in its Indian unit to London-listed Vedanta, but was selective in approaching the government for approval of the deal.
The original applications for clearance of the deal outlined the view of the company’s legal advisors that government consent was not required for the transfer of control in Cairn subsidiaries with a participating interest in three producing blocks awarded prior to the advent of the New Exploration Licensing Policy (NELP).
However, the seven exploration blocks awarded to Cairn under the NELP regime had explicit provisions mandating prior approval of the government before any change in the project structure stipulated in the Production Sharing Contract (PSC). As such, Cairn had initially only sought the government’s nod for these seven exploration acreages.
In the latest applications for the three producing properties, Cairn said it was seeking the government’s consent on the advice of the oil ministry, which said prior approval was necessary, based on an opinion from the law ministry.
The law ministry had given the opinion that the transaction was nothing but the transfer of control in all 10 properties held by Cairn India. As such, it would government consent and trigger the preemption or right of first refusal (ROFR) of ONGC, as it partnered the UK-based company in all three producing properties and several of the exploration acreages.
Cairn, however, has insisted that the requirement for government consent on the deal does not trigger ONGC’s preemption rights.
Cairn did not apply for consent under any specific provision of the Production Sharing Contract (PSC) that the company had signed for the three properties with the government.
The oil ministry, too, had not sought the application under any specific clause of the PSCs.
The PSCs have a clause mandating prior government consent in case one of the companies was looking to sell or transfer its stake to a third party.
Cairn has denied it is selling its participating interest in fields like Rajasthan and says the Vedanta deal is a corporate transaction and Cairn India will continue to exist and operate the properties.
If it were to make an application under the PSC, it would have been an acknowledgment of ONGC’s preemption rights, whose existence Cairn has been denying from Day 1.