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Vedanta completes Cairn India acquisition

business Updated: Dec 08, 2011 19:59 IST

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Mining group Vedanta Resources on Thursday completed the long delayed acquisition of oil producer Cairn India Ltd, after 16 months of protracted wrangling over royalty payments.

Vedanta paid $8.67 billion for 58.5% stake in Cairn India, the company said in a press statement. Iron-ore unit Sesa Goa Ltd holds 20% of that stake.

The London-listed mining group with no experience in oil and gas, paid $5.5 billion to British oil firm Cairn Energy for 40% stake and accumulated the rest from public and Petronas of Malaysia.

The third largest acquisition ever by an Indian enterprise globally gives Vedanta control of nation's biggest onshore oilfield in Rajasthan and 9 other properties in India and one in Sri Lanka were a gas discovery was made recently.

"We firmly believe that Cairn India has the potential to double its current capacity and we will work together to achieve it," Vedanta Chairman Anil Agarwal said.

While the transaction was proposed in August last year, the government approved of the deal on June 30 on condition that Cairn/Vedanta pay a share of royalties and oil cess on the crownjewel Rajasthan oil fields.

State-owned Oil & Natural Gas Corp (ONGC), which holds a 30% stake in the Rajasthan block, has paid all the royalties since output started in August 2009. ONGC had demanded sharing of royalty paid by it be treated like other project costs and taxes and recouped from revenues earned from oil sales, a demand opposed by Cairn India.

Cairn India also felt the Rs 2,500 per tonne oil cess was a liability of the licencee and was opposed to deviating from the signed contract to share any of this burden.

The government, however, supported ONGC's stand and made sharing of royalty and acceptance of cess liability by Cairn India preconditions for giving its nod to the transaction.

Despite Cairn India's reservations, its current and future promoters -- Cairn Energy and Vedanta, respectively --accepted the government conditions, following which ONGC waived its preemption rights over the deal.

The Home Ministry also late last month gave security clearance to a Vedanta, which acquired 40% of Cairn Energy's stake at Rs 355 per share.

Cairn India CEO Rahul Dhir in a conference call said Mangala, Bhagyam and Aishwariya oilfields, the largest of the 18 discoveries the company has made in the Rajasthan block, can produce 240,000 barrels per day by 2012.

Mangala, the largest field, is currently producing at 125,000 bpd has potential to go up to 150,000 bpd. Bhagyam, the second largest field, is ready for production and can pump up to 40,000 bpd. Aishwariya can produce 10,000 bpd.