India will vet the ability of London-based miner Vedanta Resources Plc to carry out oil exploration before allowing it to buy a majority stake in Cairn Energy Plc’s local unit, the oil ministry’s top bureaucrat said.
The ministry must approve any changes to production-sharing contracts signed by Cairn India Ltd., Oil Secretary S. Sundareshan said today.
“Issues of the technical capability of the parent company are guaranteed in the production-sharing contracts, so the parent company status would have to be examined,” Sundareshan told a press conference in Mumbai. “We have written to Cairn saying they should seek these approvals. So far, there has been no response.”
Vedanta, controlled by billionaire Anil Agarwal, agreed on Aug. 16 to pay as much as $9.6 billion for up to 60 percent of Cairn India. Vedanta, which mines copper and zinc and smelts aluminum, has no previous experience in oil and gas exploration. Cairn India’s management will continue running the company after the acquisition, while Vedanta will provide guidance, Anil Agarwal told Bloomberg UTV in an interview Aug. 16.
“The technical capabilities are definitely a factor and it’s yet to be seen how the ministry clubs together the existing management’s capability with Vedanta’s capabilities,” Niraj Mansingka, a Mumbai-based analyst with Edelweiss Capital, said by phone today.
The oil ministry has informed the Securities & Exchange Board of India that it has the right to review any changes to production-sharing contracts, Sundareshan said. Final approval for the purchase lies with the capital markets regulator.
Cairn India, which operates India’s largest onshore oil field, holds 10 production-sharing contracts with the government and other exploration companies, he said.
The company is 62 percent owned by Edinburgh-based Cairn Energy. Its Mangala field produces about 125,000 barrels a day of crude oil, equivalent to 19 percent of India’s output in the year through March.