SHAREHOLDERS in Scottish oil exploration and production firm Cairn Energy will share more than £2billion after the long delayed sale of a controlling interest in the firm’s Indian subsidiary was finally completed.
Cairn’s board of directors will be in the money following the deal, including non-executive chairman and founder Sir Bill Gammell, who will get around £5million, and chief executive Simon Thomson, whose windfall is expected to be £1.4million.
Cairn confirmed yesterday that it had sold a 30% stake in Cairn India to Vedanta for £2.6billion, taking the Indian miner’s share of the business to 58.5%. Cairn will maintain a 22% interest.
About £2.2billion will now be returned to Cairn Energy shareholders, including the directors and around 3,000 individuals.
Edinburgh-based Cairn agreed to sell its controlling interest in Cairn India to Vedanta in August last year, but the deal had been bogged down by regulatory delays and disagreement over royalty payments.
Mr Thomson said completing the deal allowed Cairn to realise significant value creation from its Indian business. He added: “I am delighted to announce completion of this transaction which represents a major milestone in Cairn’s history.
“Our remaining 22% shareholding in Cairn India, retained cash and balance sheet strength provide financial flexibility and an excellent platform for future growth opportunities.”
Cairn India was formed after Cairn Energy bought out Shell from a 50-50 exploration joint venture between 1997 and 2002 for only £4.7million. It struck oil in Rajasthan in 2004 and has kept finding more since.
David Barclay, divisional director at wealth manager and financial-planning specialist Brewin Dolphin in Aberdeen, pointed out Cairn’s exploration programme in Greenland had yet to replicate the performance enjoyed in India; so far, it has drilled eight wells in the region without success.
He said that, because most of the proceeds from the sale would be going to shareholders, it was likely Cairn would have to bring in an exploration partner to share future costs and risks.
Mr Barclay said Cairn’s shares, which closed down 2.3p at 275.5p yesterday, were rated lower than its peers, adding: “Cairn is less diversified and is undoubtedly a riskier play, but there is currently very little in the share price for the Greenland operation, with market valuing the business on retained cash and the residual Indian stake. As such, any future success with the drill bit may well re-rate the stock.”