Cairn rebuts ONGC’s claims on pre-emption rights

Cairn rebuts ONGC’s claims on pre-emption rights

New Delhi: In a strong rebuttal, Cairn Energy Plc has told Oil and Natural Gas Corp (ONGC) that its decision to sell majority stake in its Indian unit to Vedanta Resources does not trigger the state-owned firm’s pre-emption rights.

The proposed transaction, valued at $8.48 billion, “is at shareholder level involving sale of (40 to 51%) shares of Cairn India (and) there will be no change to, or assignment of, the participating interest" in any of the 10 properties held by the company, Cairn Energy wrote on 29 October.

ONGC had, on 21 October, written to Cairn Energy saying the “change of control of Cairn India and acquisition of majority stake therein by Vedanta Resources amounts to an effective assignment/transfer of participating interest" (or sale of stake in the asset like the Rajasthan block).

ONGC is partner in all the three producing fields held by Cairn India and has interest in most of its seven exploration blocks awarded under the New Exploration Licensing Policy (NELP).

While the NELP blocks have explicit provisions for seeking government and partner nod for transfer of control in the company, the contracts for the three producing properties make that necessary only in case Cairn India was to sell its stake in them, individually, to a third party.

“As previously stated, following review of contractual documentation, we have been advised by external legal advisers and senior counsel in India that the provisions you refer to in both the pre-NELP and NELP joint operating agreements do not apply in respect of a proposed sale of shares in Cairn India," Cairn Energy said.

As requested by ONGC, Cairn Energy provided a complete copy of the sale and purchase agreement. ONGC, on 21 October, wrote to Cairn Energy, saying it had preemption rights and asked for value of each of the 10 assets held by the British firm’s Indian unit so as to enable it “decide on the future course of action."

“As you will see from the agreement, there is no value assigned to individual (assets): the asset that is the subject to the agreement is the shareholding in Cairn India, not the individual licence interests," Cairn Energy wrote.

It said “all of the Indian operating expertise of the Cairn Group resides within Cairn India, and not in Cairn Energy Plc. This will remain the case even if Cairn Energy Plc ceases to be the controlling shareholder."

“We can also confirm that there are no planned changes in the organisation, standards, policies and systems of the Cairn India Group," it further said.

“The transaction will have no effect upon the knowledge and experience of the Cairn India Group as a PSC contractor, or that of Cairn India Group, operating in line with accepted international petroleum industry practice."

ONGC had asked Cairn Energy to give written notice to it with complete terms of its Vedanta deal for it to “consider the matter of exercising its right to acquire (Cairn India’s) interest (in a block like Rajasthan)."

Cairn Energy said India had approved Cairn India Group as a distinct operator of PSCs in the country for the purpose of license awards in NELP.

Highlighting Vedanta Group’s financial strength, it said: “Vedanta Resources is a widely experienced operator in the natural resources sector, and is India’s largest non-ferrous metals and mining company based on revenues."

Cairn Energy holds 62.38% stake in Cairn India and is selling 40 to 51% stake to London-listed Vedanta Resources for $8.48 billion.