Cairn India

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Cairn India is a major subsidiary of Cairn Energy operating in South East Asia, with over 40 oil and gas discoveries and the development of major fields in India, Bangladesh and Sri Lanka.[1]. As of August 2011 Vedanta Resources is aiming to acquire a 58 per cent majority share in Cairn India, in an $8.5 billion deal. They currently own 28.5%. The deal has been approved by the Indian government and awaits a Cairn India shareholder resolution on conditions to complete the final stake sale. Cairn Energy holds 52.2% stake in Cairn India and together with Vedanta's 28.5%, it commands three- fourth of voting rights that can see any resolution through[2].


UK government pushes Vedanta Cairn deal

Vedanta's takeover of Cairn India was delayed for many months prior to completion of the deal due to investigations by the Indian government into Vedanta's environmental track record and ability to manage strategically important oilfields, plus disagreements over royalty rates between Vedanta and Rajahstani state owned company ONGC, a 30 per cent shareholder in Cairn's largest producing oilfield which is in Rajahstan.[3][4].

During this process the UK government stepped in several times to speed up the deal presumably following considerable lobbying from Cairn and/or Vedanta. In February 2011 Britain's high commissioner to India Richard Stagg, wrote to the Indian prime minister's office in outrage over ONGC's demands to recoup it's $3.1 billion royalty from the oil fields claiming that:

"A decision to approve the transaction on the basis of such a pre-condition would fundamentally change the commercial basis upon which the transaction had been agreed as well as unfairly impact minority shareholders in Cairn India. It would therefore render the proposed transaction unviable."[5].

In the same month the British Prime Minister David Cameron even made a rare personal intervention with his Indian counterpart, Manmohan Singh, to hasten a decision and break the deadlock over royalty payments threatening the sale to prevent 'unnecessary delays'. According to the FT newspaper,

In his letter, Mr Cameron emphasised the importance of the deal to British investment in India. The UK prime minister has appealed to Mr Singh to see that a decision is made on Cairn’s sale of the oilfields to Vedanta as soon as possible.

The UK PM's team told the FT that his 'decision to raise the Cairn deal with his Indian counterpart reflects his determination to bring a sharper commercial edge to British diplomacy in a bid to help overcome bureaucratic hurdles'[6].

Cameron also highlighted in the same letter the need for greater transparency and predictability in India’s policy environment to enhance trade and investment between the two countries, and several other issues of concern including over the Indian government's pursuit of unpaid capital gains taxes from Vodafone. [7]

Workers fear Vedanta takeover

Shortly after Vedanta's takeover was successful the Economic Times of India reported that Cairn India staff were afraid of changes in working conditions, pay and company structure under Vedanta's ownership. They quote anonymous workers who say they fear a change to their renumeration policy which currently gives some of them 'generous stock options' and are also afraid that Vedanta has no experience in the risky business of oil. Cairn India Chief Executive Rahul Dhir has been meeting with employees to alleviate their fears, telling them that Vedanta will help Cairn India to grow as a company[8].

'The Vedanta effect'- boardroom drama over Cairn-Vedanta deal

The prolonged negotiations over the terms of the takeover deal cost Cairn India their CFO in August 2011, in what the Times of India first called the 'Vedanta effect' and later 'blood on the boardroom floor'. Indrajit Banerjee, CFO since 2007 left the company amid uproar from minority shareholders and Cairn India board members that parent company Cairn Energy was forcing Cairn India to accept the Indian Government's conditions for the deal, which reduce the deal size to $6.2 billion from 46.84 billion due to enforced royalty payments on the Rajastahni oil fields[9]. Earlier in August Cairn Energy was booed at the Cairn India AGM for going back on it's commitment to rather drop the Vedanta deal than capitulate to the Indian Government's demands[10]. Naresh Chandra, board member of both Cairn India and Vedanta seemed angry at the government's pre-conditions, quoted in the Economic Times after the AGM:

"What do you expect? Of course the mood of most shareholders at the AGM was low! we had already decided and told them the details of the entire voting pattern including how many promoter shareholder votes and how many minority shareholder votes will be submitted for everyone to see on September 14. We cannot express our view on the government's pre-conditions as we are on the company board,"[11]

The Times of India claims that:

The delays and uncertainty have triggered a string of senior departures from Cairn, amid criticism that Vedanta lacks expertise in the oil industry and has a mixed safety record. [12]


Operations

Sri Lanka

Cairn Lanka Pvt, a wholly owned subsidiary of Cairn India has signed an exploration and production agreement with the Government of Sri Lanka for one of eight frontier oil blocks in the Mannar basin (two others have been reserved for the Indian and Chinese governments, and the Russian oil giant Gazprom are in talks with the Sri Lankan government for another[13]). Block SL-2007-01-001 is about 3000 sq km with a depth of 400m to 1900m and is located directly beside the Bar Reef Marine Sanctuary, a pristine coral reef which is thought to be the most biodiverse area off India's coasts[14][15][16]

Following seismic surveys carried out in 2009 and January 2010, Cairn Lanka contracted Japan Drilling Company (JDC) to begin exploratory drilling of three wells in August 2011 using the Chikyu Hakken, a fifth generation Japanese drilling ship which was damaged in the Sendai tsunami and will be fixed after this drilling operation[17][18][19][20][21]. Following Vedanta's takeover of Cairn India there are increased fears that this deep drilling operation in a sensitive marine area, carried out with an old and damaged drill ship could be risky.

Cairn Lanka secured a deal with the Sri Lankan Economic Development Minister Basil Rajapaksa to be totally exempt from tax and import duty for equipment, machinery and materials used in their Mannar Basin exploration. This leaves Sri Lanka with only 10% of the profit share from the wells, which Anura Kumara Dissanayake, leader of the DNA party attacked in August 2011 as potentially inadequate[22]. Mr. Dissanayake also alleged that the government not followed standard tendering procedures before signing the deal with Cairn[23]

Rajasthan

Cairn India's Rajasthan operations include 150 wells with 25 discoveries to date, carried out with a 70% participating interest from Cairn and 30% participating interest from it's partner ONGC (the state oil company). Cairn plans to increase total production in Rajasthan from 240,000 to 300,000 barrels per day, and also to set up a 4.5-6 million tonne well-head refinery in the Barmer oil fields[24][25]. Issues relating to the Rajasthani block were an important part of the year long negotiations over the Cairn-Vedanta deal. Vedanta seemed to be pushing for the Barmer refinery, supported by Indian Prime Minister Manmohan Singh and Rajasthan chief minister Ashok Gehlot along with as a range of fiscal concessions from the state. According to the Economic Times of India Gehlot encouraged Vedanta to participate in the equity for the project which would sweeten the Cairn Vedanta deal in the state's eyes. He allegedly added that;

technically, approval to the Cairn-Vedanta deal and construction of refinery in Rajasthan were two different things but it could be discussed at the Cabinet Committee in Economic Affairs (CCEA) meeting.[26]

Earlier, a row between state oil company ONGC had delayed the project when ONGC had asked that the royalties they paid on their 30% share in the Rajasthani oil fields and also on Cairn India's 70% share should be deducted from the profit from Rajasthani crude oil sales. Sharing this royalty burden will cost Cairn almost $2 billion[27][28]

People

Board of Directors as of July 2011:

Contact

Cairn India
3rd & 4th Floor, Vipul Plaza, Suncity, Sector 54
Gurgaon – 122 002
India
Telephone: +91 124 4593000 / 2703000
Fax: +91 124 2889320

Resources

Notes

  1. ↑ Cairn Energy website About Cairn Accessed 3/8/11
  2. ↑ Douglas Fraser, BBC Scotland news. 27 June 2011 Cairn Energy sells 10% stake in Cairn India to Vedanta Accessed 17/8/11
  3. ↑ Richard Wachman Vedanta given green light for $8.5bn Cairn deal The Observer, Sunday 31 July 2011. Accessed 3/8/11
  4. ↑ Amy Kazmin, June 30th 2011, Financial Times. 'Delhi approves Vedanta Cairn deal' Accessed 25/7/11
  5. ↑ EI Finance. April 27, 2011. 'Vedanta Buys Smaller Cairn India Stake as Delays Continues'
  6. ↑ James Lamont and Amy Kazmin in New Delhi, and Alex Barker in London, Cameron intervenes in Cairn sale, February 18 2011
  7. ↑ James Lamont and Amy Kazmin in New Delhi, and Alex Barker in London, Cameron intervenes in Cairn sale, February 18 2011
  8. ↑ Himangshu Watts, 12/8/11 Cairn India staff keep fingers crossed on future in Vedanta Economic Times of India. Accessed 15/8/11
  9. ↑ Times of India, August 24, 2011 Vedanta effect: Cairn India's CFO quits Accessed 25/8/11
  10. ↑ Asia Pulse, August 24, 2011 'CAIRN INDIA SHOULD ACCEPT ALL GOVT'S CONDITIONS: CAIRN ENERGY'
  11. ↑ Shuchi Srivastava & Nihar Gokhale, The Economic Times. August 19, 2011 Minority Shareholders concerned about government terms on Cairn-Vedanta deal Accessed 25/8/11
  12. ↑ Robin Pagnamenta. Times of India, August 25, 2011. 'First blood on the boardroom carpet after oil producer's row over sale'. Accessed 25/8/11
  13. ↑ Colombo Page newspaper. Tue, Aug 16, 2011 Russian oil giant holds talks with government minister on oil exploration in Sri Lanka Accessed 16/8/11
  14. ↑ Arijit Barman, Business Standard, Mumbai, August 17, 2011 A year on, Cairn drills into Sri Lankan waters Accessed 17/8/11
  15. ↑ Vinod Moonesinghe The Bar Reef Special Management Area Plan SARID, December 19, 2003. Accessed 16/8/11
  16. ↑ INITIAL ENVIRONMENTAL EXAMINATION REPORT [www.prds-srilanka.com/pdfs/Sri_Lanka_Seismic_EIA_Final_Report.pdf Three Dimensional Seismic Survey for Oil Exploration in Block SL-2007-01-001 in Gulf of Mannar-Sri Lanka] CAIRN LANKA PVT. LIMITED. October 2009. Report prepared by: National Aquatic Resources Research and Development Agency. Accessed 16/8/11
  17. ↑ Arijit Barman, Business Standard, Mumbai, August 17, 2011 A year on, Cairn drills into Sri Lankan waters Accessed 17/8/11
  18. ↑ JAMSTEC website Where is DV Chikyu? Accessed 16/8/11
  19. ↑ Cairn India website Operations, Sri Lanka Accessed 16/8/11
  20. ↑ Colombo Page newspaper. Tue, Aug 16, 2011 Russian oil giant holds talks with government minister on oil exploration in Sri Lanka Accessed 16/8/11
  21. ↑ Energy-pedia website Sri Lanka: Japan Drilling Company signs contract to drill for Cairn offshore Sri Lanka 16 Nov 2010. Accessed 16/8/11
  22. ↑ Daily Mirror (Sri Lanka). August 13, 2011 Lifting emergency: The talk of the House Accessed 16/8/11
  23. ↑ Daily Mirror (Sri Lanka). August 11, 2011 Thursday Cairn Lanka exempted from taxes and import duties Accessed 16/8/11
  24. ↑ Arijit Barman, Business Standard, Mumbai, August 17, 2011 A year on, Cairn drills into Sri Lankan waters Accessed 17/8/11
  25. ↑ Rajeev Jayaswal, Economic Times of India. Jun 13, 2011.PM assures support to Rajasthan in setting up refinery at Barmer Oilfields Accessed 17/8/11
  26. ↑ Rajeev Jayaswal, Economic Times of India. Jun 13, 2011.PM assures support to Rajasthan in setting up refinery at Barmer Oilfields Accessed 17/8/11
  27. ↑ Arijit Barman, Business Standard, Mumbai, August 17, 2011 A year on, Cairn drills into Sri Lankan waters Accessed 17/8/11
  28. ↑ Economic Times of India. Jan 31, 2011 Resolve royalty row before approving Cairn-Vedanta deal: ONGC tells govt Accessed 17/8/11
  29. ↑ Cairn India Website About Us, Board of Directors] Accessed 3/8/11
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