ONGC divided on Cairn India counter-bid: report

Citing unidentified ONGC officials, the newspaper said making a $10-billion counter-bid may prove counter-productive and unviable for the Indian oil explorer and producer.

"Matching Vedanta's offer and improving it would add strain to our balance sheet as it would mean at least $4 billion of equity component. Raising that kind of resources even for ONGC is a challenge," it quoted a senior official as saying.

Some ONGC officials felt it would make more sense to negotiate the cess and royalty issue of Cairn's oil block in the western state of Rajasthan, in which ONGC has a 30 percent stake.

Shares in Cairn India, which had risen 3.2 percent on Tuesday on hopes for a counter-bid, were trading down 0.9 percent at 0338 GMT in a subdued Mumbai market .

Even though Cairn India is the operator of the Rajasthan oil block with 70 percent interest, it is ONGC that is liable to pay royalties to the government on the entire crude production from the block.

ONGC has said previously it wants the government to reimburse it for royalties it would have to pay beyond its 30 percent stake in the block.

The newspaper said the cess and royalty payments add up to 183 billion rupees ($3.9 billion) in the next 10 years, and a revision in the royalty bill to just 30 percent could potentially lead to a saving of 128 billion rupees.

An oil ministry source had told Reuters this week all options were open for Indian state energy firms to make a counter-bid, after London-based miner Vedanta Resources had made the offer last week for the Indian unit of Cairn Energy .

The Business Standard said the government would play a vital role in deciding the final strategy.

($1=46.9 rupees)

(Writing by Janaki Krishnan; Editing by Ranjit Gangadharan)