Things tend to move at a slower pace in India but for Cairn Energy, the long wait for government approval of its sale of its Indian oil fields to Vedanta Resources is almost over.
It only took ten and a half months for the Indian authorities to make up their minds ...
At the beginning of the week Vedanta and Cairn said they had agreed to remove the non-compete provision and related non-compete fee of Rs.50 per share that was part of the deal.
Vedanta and Cairn Energy also agreed that completion of the transaction would take place in two tranches, though whether this is still necessary following approval of the whole shebang by the Indian authorities is unclear, though given the glacial progress of the deal so far, the smart money is betting that it will.
The intention was that Vedanta would acquire a 10% stake in Cairn India on or before 11th July 2011, taking its stake in Cairn India to 28.5% in aggregate (including the acquisition of a 10.4% stake from Petronas and an 8.1% stake acquired in the open offer).
The acquisition of the remaining 30% stake by Vedanta was to take place once the necessary consents and approvals from the government of India had been received, and this happy event has now come to pass.
The Indian government gave the nod to the deal after insisting that Cairn India has to treat royalty payments on the Rajasthan oilfields as recoverable from oil sales. That means royalties wil be deducted from the sales proceeds before profits are split between the partners and the government.
Also, Cairn India will have to withdraw the arbitration it has initiated disputing its liability to pay Rs.2,650 per tonne oil duty on its 70% in the fields.
The approval is still subject to the state-run Oil & Natural Gas Corp (ONGC) waiving its pre-emption rights on the assets it shares with Cairn India; ONGC has a stake in all three of Cairn India's oil and gas producing assets and five of the seven exploration prospects.
Vedanta will be obliged to provide financial guarantees and obtain all regulatory clearances, and a security clearance from the home ministry, so there is still plenty of scope for the saga to drag on further.
"The ball is now in the court of Cairn India," petroleum minister Jaipal Reddy told reporters.
As for Cairn Energy, it can now concentrate fully on its operations in Greenland, described in some quarters as a "bet the company" high risk-high reward play.
At 8:38am (1/7/11), the share price of Cairn Energy was down 5.3p at 409.5p. The share price of Vedanta was down 4p at 2,090p.
(Soure: .livecharts.co.uk)
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