ONGC Vows to Protect Its Interests as Vedanta Buys Cairn India

Oil & Natural Gas Corp., India’s biggest energy exploration company, will protect its interests following Vedanta Resources Plc’s plan to acquire a majority stake in Cairn India Ltd., without submitting a competing bid.

“The counter-offer date is gone and we didn’t make an offer,” Chairman R.S. Sharma told reporters in New Delhi today. “We made a conscious decision based on legal and commercial considerations. ONGC’s interests will be protected.”

ONGC’s decision may make it easier for mining billionaire Anil Agarwal’s Vedanta to buy 60 percent of Cairn India for as much as $9.6 billion. India’s government has said it will vet the London-based mining company’s ability to carry out oil exploration before approving the stake acquisition in the company owned by U.K. explorer Cairn Energy Plc.

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, Agarwal said Aug. 16.

Regulatory approval for Cairn Energy’s proposed sale of stake in its Indian unit may take at least a month, Oil Secretary S. Sundareshan said Sept. 16.

ONGC, which owns a 30 percent stake in Cairn India’s block in Rajasthan, India’s biggest onshore oil field, isn’t “passive” to the deal, Sharma said, without elaborating.

Royalty Payment

State-owned ONGC pays royalty on the entire production from the area, an incentive offered to attract overseas explorers to India before the government started auctioning fields in 1999. Based on the current production profile from the Rajasthan block over its life, the estimated royalty payment is $2 billion, Sharma said.

The Mangala field, one of three in the block, produces about 125,000 barrels a day of crude oil, Cairn Energy said in a statement Aug. 16.

Vedanta’s proposal consists of an open offer followed by a purchase of shares from Cairn Energy.

Sesa Goa Ltd., an iron ore producer majority-owned by Vedanta, will offer as much as $3 billion to buy a 20 percent stake in Cairn India from minority shareholders. The offer is scheduled to open on Oct. 11 and ends on Oct. 30.

The total number of shares sold by Cairn Energy will depend on the results of the open offer, which could take Vedanta’s stake to as high as 60 percent.

Indian state-run energy companies, including ONGC and GAIL India Ltd., are considering bidding for a stake in Cairn India, two people familiar with the matter said Aug. 24. India’s oil ministry instructed ONGC to study the possibility of making a counter offer, one of the people said.