Oil & Natural Gas Board Approves Cairn Energy-Vedanta Resources Deal
NEW DELHI (Dow Jones Newswires), Sep. 27, 2011
The board of state-run explorer Oil & Natural Gas Corp. Tuesday approved Cairn Energy's proposal to sell a majority stake in its Indian unit to miner Vedanta Resources.
The board approved the transaction on condition both Cairn and Vedanta agree to share royalties on crude oil output from a joint venture block in northwest India, and withdraw a tax arbitration case.
ONGC's approval lifts a key hurdle in the more than year-old deal, which now needs approval from India's federal home ministry before it can be finally closed.
A majority stake in Cairn India will provide miner Vedanta with a foothold in India's expanding oil and gas sector and an exit will help Cairn Energy focus on drilling in Greenland, where it has yet to find commercial quantities of petroleum.
ONGC said it carried out the evaluation of the proposed transaction with the help of SBI Capital Markets Ltd.
"After detailed deliberation on preemptive rights and economic valuations, and as Cairn has agreed to a few conditions relating to cost recovery of royalty and withdrawal of cess arbitration...the board of ONGC resolved that Cairn's request may be agreed to," ONGC said in a statement.
It said the approval is subject to Cairn, Vedanta and their affiliates executing a formal agreement on royalties and tax arbitration.
ONGC owns a 30% stake in India's largest onshore oil find in Rajasthan state, where Cairn India is the operator with a 70% holding.
Cairn Energy, which owns about 52% of Cairn India, has been awaiting clearance from ONGC to sell a 30% stake in the local unit to London-listed, India-focused miner Vedanta.
Despite owning a 30% stake in the Rajasthan field, ONGC has been paying the entire royalty on production.
The Indian government on June 30 approved Cairn Energy's proposal to sell a stake on the condition that the partners in the Rajasthan block share the royalty paid to the government on oil sales and Cairn India withdraw arbitration against the government on tax on crude sales.
On Sept. 14, Cairn India's shareholders accepted the federal government's conditions on royalty sharing and withdrawing arbitration on taxes.
ONGC last month said it expects a one-time gain of INR15 billion in the current financial year if Cairn agrees to royalty sharing on crude oil.
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