Cairn defends £4m pay-out to Gammell after Vedanta deal

James Buckee met shareholders to brief them on concerns that Gammell was being rewarded without prior consultation.

The Cairn founder is in line for a windfall in shares worth £2.5m at current prices for completing the sale of a majority stake in Cairn India to Vedanta Resources. He will get a further £1.4m as compensation after he was asked by the board to move from chief executive to his current role.

The payments drew criticism from the Association of British Insurers which issued a “red top” alert ahead of a vote by shareholders on 30 January.

One source close to the company said shareholders shared in a £2.3 billion pay-out in the Vedanta deal which had relied heavily on Gammell’s experience and contacts to pull off. The board requested his switch into the chairmanship after three directors stepped down and said he was contractually entitled to the additional pay.

The dispute over Gammell’s remuneration emerged as its joint venture in India yesterday began oil production from its second-largest discovery in Rajasthan after it won government approval to turn on the tap. The Bhagyam field will produce 40,000 barrels of oil per day, (bpd), boosting production in Rajasthan by more than 30 per cent. It is estimated Bhagyam could eventually produce as much as 60,000 bpd.

The decision to approve the increase in production marks a shift in previously strained relations between Cairn in India and its joint venture partner in Rajasthan, the government-owned oil company, ONGC.

The 40 per cent stake sold by Cairn Energy to LSE-listed Vedanta Resources for some £6bn at the end of last year was subject to a 16-month delay in government approval due in part to wrangling over a more favourable revenue sharing agreement between Cairn, which owns 70 per cent of the fields, and ONGC, which owns the other 30 per cent.