It is now common knowledge that Vedanta has shown keen interest in acquiring Cairn at a hefty price of upto $9.6 billion. There has been lot of commentary on whether this is a right acquisition for Vedanta and the issue has been discussed in detail here highlighting critical reasons as to why the deal may not be a strategic buy after all
However, deal being a strategically beneficial or not, the Vedanta-Cairn has quickly run into troubled waters due to various reasons, the primary being the stake of ONGC in Cairn’s assets.
Cairn came to the center stage when it started pumping crude from its block in Rajasthan which was touted as the first major crude oil discovery since few decades. However, Cairn only holds 70% stake in the Rajasthan Oil block (RJ-ON-90/1) with the other 30% controlled by ONGC. So, Cairn needs approval from ONGC alongside the government before even thinking about selling off.
What is more interesting is the news that Cairn has discovered Oil & Gas in the KG Basin. A flow of 75 barrels per day of oil and .27 million cubic feet per day of gas was achieved at the well. Overall it is a good news since we as a nation could do with as much Oil & Gas we can extract. Given the current situation, I wonder how this news will play out in influencing the Vedanta-Cairn deal
Increasing complexity with ONGC as a Stakeholder
A possible increase in valuations
While the oil discovery may not be a breakthrough in terms of the volume or the possible revenue generation capabilities, it is expected to add some value to the assets of Cairn. Since, the discovery was only announced on Monday there could be a possibility where in the initial price quoted by Vedanta might need an upwards revision. Would Cairn push for an increased price and would Vedanta agree?
The deal value is already pretty high and things have not panned out too well from Vedanta’s perspective. For now, Cairn seems to be having a good ride as far as the stock markets are concerned. On a day when the Sensex shed almost 100 points, Cairn seemed to have held it own closing with a gain of 3% at 354.20
What do you think? Would the recent discovery make things more complicated in the Vedanta-Cairn deal