Vedanta enters oil prospecting with $8.5-$9.6 bn Cairn deal (Roundup)

MUMBAI - London-based industrialist Anil Agarwal-led Vedanta Group Monday announced a $8.5-$9.6 billion deal to acquire 51-60 percent stake in the Indian arm of British hydrocarbons explorer Cairn Energy to add another vertical to its portfolio.

The group, that has interests in prospecting minerals like iron ore, bauxite and copper, will now also have a presence in the oil and gas exploration business by virtue of the all-cash deal, which was reported to all major stock exchanges Monday.

The principal holding arm of the group Vedanta Resources Plc will hold a 31-40 percent share in Cairn India, while its Indian subsidiary Sesa Goa will buy 20 percent stake, the statement said. The deal is expected to conclude by the first quarter of 2011.

The group will acquire these shares from Cairn India’s Edinburgh-based parent company, Cairn Energy, for Rs.355 a share and also pay a non-compete fee of Rs.50 per share. The transaction will be funded through debt and cash resources.

“The proposed acquisition significantly enhances Vedanta’s position as a natural resources champion in India. Cairn India’s Rajasthan asset is world class in terms of scale and cost, delivering strong and growing cash flow,” said Anil Agarwal, executive chairman of the London-based Vedanta.

Sesa Goa alone will pay $3 billion in cash for the 20-percent stake in Cairn India — the fourth largest gas explorer in India by virtue of its $14 billion valuation. The company interest in blocks spread over Rajasthan Gujarat and Andhra Pradesh coast.

The Cairn India scrip touched an all-time high of Rs.368, up 3.5 percent from its previous close at Rs.355.45. However, profit booking pulled down the stock to close 6.36 percent lower at Rs.332.85.

The Sesa Goa scrip also tanked, falling 8.9 percent to shut shop at Rs.322.55. It had closed Friday at Rs.354.05.

“The stake would be acquired under an open offer by Sesa Goa and Vedanta. If there is insufficient take up in the offer, Sesa Goa will acquire the balance as part of the Vedanta Group’s acquisition of a 51-60 percent stake in Cairn India,” said the Vedanta subsidiary.

The deal, however, has to get the government’s nod as it is mandatory for all production sharing contracts private explorers sign to seek approval before a stake in a field is sold.

Cairn Energy holds 62.36 percent in its Indian unit, which was propelled into a major player in the energy space after its huge oil find in Barmer, Rajasthan, in 2007.

The average crude oil production from Mangala oilfield situated in the Barmer block is currently over 44,300 barrels per day (bpd) and is in the process of being ramped up to the plateau rate of 125,000 barrels.

The block is estimated to hold reserves of 6.5 billion barrels of energy equivalent.

Cairn India’s other assets include participating interest in the Ravva oil and gas field in the Krishna-Godavari Basin and material exploration and production positions in 12 blocks in west and east India along with new exploration rights elsewhere in the country and Sri Lanka.

Vedanta is a diversified group with its primary operations in India. Its subsidiaries include Sterlite, Hindustan Zinc, and Sesa Goa, BALCO.