Cairn reveals sale plan if Vedanta deal falls through

CAIRN Energy chief executive Sir Bill Gammell yesterday told shareholders he would consider selling a small stake in his firm's Indian subsidiary to fund drilling in Greenland if the £5.9 billion sale of Cairn India to Vedanta falls through.

His comments at the firm's AGM in Edinburgh came after Cairn and Vedanta extended the deadline for the deal until after Indian government ministers meet to consider the sale of a 40 per cent stake.

A meeting of ministers is expected to take place next Friday. Cairn and Vedanta had already extended the deadline to today after the Indian cabinet's committee on economic affairs had last month referred the deal to a group of ministers.

Cairn agreed in August to sell up to 51 per cent of its Indian subsidiary to mining giant Vedanta, but yesterday confirmed that it will sell 40 per cent and hang on to a 22 per cent holding in the business.

Vedanta has been building up its own stake in Cairn India following an open offer, buying a 10.4 per cent stake last month from Petronas - Malaysia's national oil company - for 920m.

The mining giant now owns 18 per cent of the Indian oil producer, having also snapped up about 8 per cent of the stock for 751m from smaller investors.

Gammell said: "In the unlikely event of the deal with Vedanta not happening then we could look at selling a small stake in Cairn India to fund Greenland.

"But you have to remember that Vedanta approached us about buying the stake. Cairn India is still a superb asset and we believe we can boost production from the current 125,000 millions barrels of oil per day (BOEPD) to 240,000 if we get permission from the Indian government."

Cairn's Mangala field in the Indian state of Rajasthan is already producing 125,000 BOEPD but the firm has now started development work on the Bhagyam field, the second-largest in the state, which is expected to add a further 40,000 BOEPD to production.

Gammell added: "Now that the state elections in India are out of the way, we hope that making a decision on the Vedanta deal will rise up the agenda."

He said that the deal could be completed "in a short period of time" once the go-ahead is granted by ministers

The disagreement over royalties between the Indian government and its national oil company - which is Cairn's partner in Rajasthan - is a separate issue and shouldn't be allowed to get in the way of the sale, he added.

Cairn also told shareholders that it would announce up to four targets for this summer's Greenland drilling campaign later this month. Gammell said that the drilling was "a marathon, not a sprint" and that, if no oil was found this summer, Cairn would probably switch to one of the blocks to the north or south of its present locations.Cairn is taking analysts and institutional investors on a tour of its Greenland operations next week.

Shareholder Peter De Vink, managing director of EFGH Corporate Finance, said: "If Cairn strikes oil in Greenland then I think the shares will go through the roof. I think the market is pricing in the Vedanta deal not going ahead."

Cairn chairman Norman Murray said he was at a loss to explain why only 78.5 per cent of votes cast were in favour of a resolution to renew the board's ability to launch a rights issue of up to one-third of the company's share capital. He said the resolution was in line with best-practice guidelines issued by the Association of British Insurer (ABI), which represents institutional investors, and the board had no intention at present to use it.