A long-running $1.6 billion tax dispute between Cairn Energy and the government of India could be drawing to a close.
A final hearing has been set for August and the arbitration panel is likely to issue a verdict only a few weeks later, the explorer said yesterday.
Cairn was founded in Edinburgh in 1981 by Sir Bill Gammell, the former Scotland rugby union international. It floated in 1988 on the London Stock Exchange and has struck oil around the world.
The dispute with India relates to the sale of Cairn India, a subsidiary, to Vedanta Group in 2011. The government made a retrospective tax claim on the deal in 2014.
Cairn believes that it should not have to pay any additional tax. However, the dispute has meant that it has not been to sell the 5 per cent stake in Vedanta that it now owns, which is valued at about $1.1 billion, or gain access to dividends of more than $100 million. Cairn has suggested that it will return some of the cash to shareholders if the arbitration finds in its favour.
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The update came as Cairn predicted that it would produce between 17,000 and 20,000 barrels of oil a day this year through minority stakes in the Catcher and Kraken fields in the North Sea. Both fields are steadily working up to their full production capacity.
The move into meaningful production in the North Sea should help to provide cashflow as the company targets new exploration drilling programmes and finalises a development plan for the large SNE field off the coast of Senegal.
A first batch of 336,000 barrels of oil from Kraken, sold in the final quarter of last year, earned the company about $20 million.
Cairn’s share of spending on the two North Sea fields is expected to be about $125 million this year and it has a further $75 million of exploration spending already lined up. Up to ten wells are expected to be drilled in British and Norwegian waters in the next two years.
A decision on plans to develop the Skarfjell field, in which Cairn has a 20 per cent stake, is expected in the first half of the year. Cairn aims to have the first oil extracted in 2021 and a peak production of 50,000 barrels a day.
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For SNE, Cairn wants to have a development plan supported by the government of Senegal in place by the end of this year. First oil from that field would be extracted between 2021 and 2023, with the initial phase targeting production of up to 125,000 barrels a day.
Simon Thomson, chief executive, said: “Cairn is funded in respect of all capital commitments with a strong balance sheet and growing production cashflows. We continue to assess and pursue new ventures within the context of a balanced exploration and production portfolio. We are excited by the potential of blocks offshore Mexico, where we anticipate the start of exploration drilling in 2019.”
David Round, an analyst at BMO Capital Markets, said: “The trading update shows a company in good health and delivering against milestones.”
Its shares fell 5¼p to 210¾p.