Cairn rejects ONGC to welcome Reliance in sale talks

Vol 6, PW 11 (31 Jul 02) Exploration & Production
     

AFTER FOUR MONTHS of negotiations, Scottish explorer Cairn Energy has rejected ONGC efforts to buy its assets in India and Bangladesh.

PETROWATCH learns of a 19th July Cairn letter to ONGC that leaves no doubt. The Cairn letter was in reply to an ONGC request for extension of time to complete due diligence.

"Such extensions are usually given as a matter of course unless the seller does not want to sell and has other ideas," reveals a source. "But Cairn refused to give ONGC the extension." ONGC feels both disappointed and relieved by this unexpected turn of events.

Disappointed because it invested much time, energy and resources into the effort, believing towards the end that it was close to a deal. Relieved because as due diligence progressed it also glimpsed difficulties ahead if the deal went through.

For example, how to monetise Cairn's Bangladesh assets given the uncertainty about gas exports Also, payment to Cairn for the Indian assets would have to be made in foreign currency - something which state-owned ONGC would have a tough time explaining. "Some of us saw the Cairn asset sale as a messy situation unsuited for ONGC." There was also the question of the right price.

"Cairn said they wanted $700m but we were not prepared to pay anything more than $400m because we felt they were attaching too high a price for their exploration assets." All the same, ONGC believes the real reason Cairn is ignoring it is because a more aggressive buyer has approached it: Reliance.