ONGC board meets 11th September for Cairn deal

Vol 7, PW 13 (10 Sep 03) Exploration & Production

Cairn Energy has had a rocky few days.

Positive interim results released on 1st September pleased the market boosting the companys share price. Shortly after, news broke that Cairn is working a deal with ONGC to sell some of its assets in India.

Precise details are sketchy but we know for certain that negotiations are focused on Cairn's deepwater block KG-DWN-98/2, where it holds 100%, and on CB-OS/2 in Gujarat, where it holds 75% for future exploration and appraisal and 50% in the discovered Lakshmi and Gauri fields. Confirmed also is that ONGC is ready to acquire 85% of KG-DWN-98/2, leaving Cairn with 15%.

Cairn has never made a secret of the fact that it is looking for a partner to develop this promising block next door to Reliance's 14 tcf find at KG-DWN-98/3 and where it too has made significant discoveries. "Cairn is currently seeking to bring in a value adding partner to optimise forward plans for block KG-DWN-98/2," reads the Cairn mid-term report.

Less clear is Cairns plan for CB-OS/2 and its prolific Lakshmi and Gauri fields. We believe ONGC wants as much of this block as possible but is facing resistance from Cairn that wants to give away as little as possible.

Sadly we only have rumours of the price under consideration. One source tells us the deal will not go through, "for anything less than Rs400cr ($83m)." Another quotes a figure of $100m.

Unclear is what these figures represent. City analysts in London tell us $83m would be a fair price if it covered only the sale of 85% of KG-DWN-98/2 but cheap if it included part or all of CB-OS/2.

A clearer picture should emerge after Thursday, 11th September when ONGC directors meet in Delhi to discuss the Cairn deal. "The agenda note (on the Cairn deal) will be placed before the board just before the meeting," reveals a source.

"We will try to get the maximum flexibility on this (CB-OS/2) block from Cairn." We understand Cairn does not want to sell the entire CB-OS/2 block to ONGC. Indications are that only a portion of the Lakshmi and Gauri gasfields will be sold.

"The exact proportions are being worked out now," reveals a source.Cairn and ONGC are also discussing a 'barter' arrangement that could enable Cairn to farm-in to ONGC's NELP acreage.

Such an arrangement would make it easier for ONGC to bypass the government. One thing is clear: this deal depends entirely on whether the two sides can agree on CB-OS/2.