Cairn is hopeful of 'positive' outcome in Indian sale talks

SHARES in Cairn Energy will remain in sharp focus today as crunch talks continue with the Indian government over the proposed sale of the majority of the Edinburgh firm's Indian business to Vedanta Resources.

Sir Bill Gammell, chief executive of the Scots oil and gas explorer, and Rahul Dhir, boss of Cairn India, met Indian oil secretary S Sunderashan in Delhi yesterday for what were described as "constructive" but inconclusive discussions over the proposed 5.4 billion deal.

Analysts fear it could be scuppered if the Indian government imposes a number of conditions which could lead to a dramatic drop in the value of Cairn India.

Cairn Energy said in a statement last night that it remained hopeful it could close the deal, originally expected to complete in December, by 15 April.

"Constructive discussion on the Cairn Vedanta transaction took place in Delhi… with the ministry of petroleum and natural gas and the director general hydrocarbons of the government of India," a spokesman for the firm confirmed.

"Cairn and Vedanta continue to work with the government of India to complete the proposed transaction before 15 April 2011."

Speaking after the 90-minute meeting, Sunderashan said he hoped to find a "positive solution" to the situation, providing the strongest indication yet that the government was willing to play ball.

However, final say on the matter will lie with India's new oil minister S Jaipal Reddy.

Shares in Cairn tumbled 3 per cent on Friday, wiping some 160 million off the firm's value, as fears grew that the Indian government would impose conditions on the deal that were so onerous that Vedanta could possibly walk away.

The sale of 51 per cent of Cairn India to Vedanta would give Cairn Energy the financial firepower for further exploration projects elsewhere and would also see billions of pounds returned to shareholders.

Former rugby international Gammell, who holds 2.9 million shares in the group, would also be in line for a multi-million special dividend pay-out if the deal is approved.

Analysts' main concerns revolve around royalties from fields discovered in the state of Rajasthan. Cairn owns 70 per cent of the licences while the other 30 per cent is held by the Indian state-owned Oil and Natural Gas Corporation (ONGC), but the latter is responsible for paying the royalties on the entire output under an agreement governing the area - the "production sharing contract".

Newspapers in India reported on Friday that the Indian government is likely to require Cairn India to take on a share of the royalties.The Economic Times suggested that Vedanta could back away from the deal if concessions were made on the royalty front.

India's oil ministry has said repeatedly that it does not oppose the Cairn India/Vedanta deal in principle, but it would act to protect the interests of ONGC.

"We had constructive discussions with the representatives of Cairn and Vedanta. We hope to move forward to a positive solution," Sunderashan said after the meeting, which also included MS Mehta, group chief executive of Vedanta, and Tarun Jain, the firm's chief financial officer.

The chairman of ONGC, R S Sharma, said last month that his business stood to pay 140 billion rupees (1.9bn) in royalties from the output from the Rajasthan fields.