ONGC offers to buy Cairn's South Asian assets

Vol 6, PW 20 (04 Dec 02) Exploration & Production

CAIRN ENERGY is back in the market looking for a buyer for its South Asian assets.

A source tells us in late November ONGC submitted a non-binding bid for all of Cairn's South Asian assets, barring Ravva and exploration block RJ-ON-90/1 in Rajasthan. Cairn, we understand, wants to keep RJ-ON-90/1, while the oil ministry has apparently overruled ONGC's decision to bid for Ravva.

It's believed Shastri Bhawan thinks the 'net present value' (at interest rates of between 10% and 12%) of Ravva is close to negative because the field is past its prime; the 'water cut' is increasing; and a lot of financial issues are pending for arbitration between the Ravva consortium (including ONGC) and the government. With its bid, ONGC is back in the race despite Cairn's July letter refusing to grant it an extension of time to complete due diligence.

At that time the Cairn move was seen to favour Reliance Industries - ONGC's competitor for the Cairn assets. While ONGC has bid for Cairn's Indian assets, its overseas arm ONGC Videsh has bid for the Bangladesh assets.

Last year investment banker Deutsche Bank valued Cairn's India assets at $415m and its Bangladesh assets at $287m. ONGC believes the Deutsche Bank valuation is "a little on the higher side" but declines to say by how much.

ONGC is keen to add Cairns assets to its portfolio. "We want to add to our reserves," reveals a source.

"We are also operating in several adjoining blocks and buying these assets would make sense because we could integrate our development efforts and bring down our production costs. Development wells in the Cairn blocks could be linked to existing platforms on our blocks or vice-versa."