Industry sources said Essar is open to the idea of offering up to 20 per cent of its stake to a multinational oil company. Work on the Ratna field is yet to begin a good four years after it was awarded to the consortium though indications are that it has the potential to yield considerable oil.

"At this stage, it makes little sense for Essar to wait for exploration efforts to begin on the Ratna field. Roping in a foreign player would be beneficial not only from the point of revenue but also to usher state-of-the-art technology," observers say. Exploration is a capital-intensive business and at a time when the Ruias are strapped for cash, it is only logical to consider a partial exit from someoperations.

ONGC has similar arrangements with Reliance and Enron for the Panna-Mukta fields and with Videocon, Marubeni and Cairn Energy for the Ravva offshore. The PSU holds 40 per cent in these ventures with the balance taken up by private players. For instance, Reliance and Enron account for 30 per cent each at Panna-Mukta while Videocon holds 22.5 per cent, Cairn 30 per cent and Marubeni 7.5 per cent in the Ravva field.

Essar Oil's move to divest a part of its holding stems from the fact that the company is going in for a major restructuring excercise of all its activities. PricewaterhouseCoopers and NM Raiji & Co are already working on demerger plans for the upstream activities and for the terminals and tankages in Essar Shipping. The idea here is to form new companies where a foreign player can participate in the equity.

Observers feel that these efforts make sense as bigger oil companies like Indian Oil Corporation (IOC) and ONGC are only of late beginning to kick off the process of becomingtotally integrated in their operations right from exploration and production to refining and marketing. A foothold in refining without marketing support becomes illogical and, hence, the move by Essar Oil to rope in Bharat Petroleum Corporation as a strategic partner.

INSIGHT

Videocon may sell 22.5% in Ravva offshore

Speculation is rife in industry circles that Videocon is considering selling its 22.5 per cent equity in the Ravva offshore. While company officials were unavailable for comment on the issue, the grapevine has it that Unocal of the US is keen on buying out Videocon's stake in the venture. Sources in the oil industry are, however, emphatic that the Dhoots would not think of exiting at this stage given that Ravva has tremendous potential to yield more oil. However, the fact remains that industry groups, of late, have begun to divest their stakes in non-related areas and in the case of Videocon, it possibly makes more sense to stay in the consumer goodssegment.

INSIGHT

Sale timing will be critical

With the company debentures in default grade, the sale of 20 per cent stake of Essar Oil' stake in the Ratna field may be treated as a sort of distress sale to raise finances for completing the Vadinar refinery and also meeting short-term interest liability. And rightly so with institutions and other creditors having put in stringent conditions for future funding to the project by insisting that the company also brings in additional funds.

However, what may actually help company get higher value for its stake is the timing of the sale.

The doubling of crude oil price has raised the valuations of all the companies in the business of oil exploration and production by a similar amount. Doing a deal quickly would be in the interest of all the stakeholders of the company.

--Manish Saxena