CAIRN Energy has said it wants $600 million (£425m) damages from the Indian Government as a tax dispute drags on amid the crude price plunge while highlighting the progress it has made off Scotland and West Africa.
The Edinburgh-based firm has started formal proceedings to get compensation for the sharp fall in the value of its remaining holding in the Cairn India business since the country’s government launched a $1.6bn tax claim against it two years ago.
The government has prevented Cairn Energy selling its ten per cent stake in the Indian business pending resolution of the dispute, during which the value of the interest has fallen from $1bn to $400m.
Cairn has always insisted it has paid all tax due.
The decision to launch arbitration proceedings marks the latest attempt to bring an end to a dispute that has posed big challenges for the company, and which the UK Government has tried to help resolve without success.
Cairn’s chief executive, Simon Thomson, said in November the company had been forced to shed around 40 per cent of its workforce and to sell North Sea assets to help conserve cash while the disagreement continued.
Analysts at the Jefferies brokerage said the start of arbitration proceedings marked a step in the right direction for Cairn but did not assume Cairn would get any value for its Indian investment.
Nathan Piper at RBC Europe predicted the arbitration process would take at least 12 months.
However, in an update on recent trading, Mr Thomson said Cairn has enough resources in place to fund the programme of exploration and development activity that it has planned. It expects to be able to capitalise on the drop in the costs of services such as drilling recorded following the crude price fall.
Cairn plans to spend around $500m in coming months finishing work on the giant Kraken and Catcher fields in the North Sea, which it expects to come onstream in 2017.
It said work on the Kraken heavy oil field East of Shetland is progressing well and on budget.
The company’s share of the total expected cost has fallen by 10 per cent, around $50m, to $522m.
Cairn did not comment on the move by Ian Suttie’s First Oil to put its 15 per cent stake in Kraken up for sale. However, it is understood the company is monitoring the situation closely.
Cairn said plans to develop the Catcher field off Aberdeen with Premier Oil are on schedule and budget.
Cairn sold a 10 per cent stake in Catcher to Dyas of Holland in September 2014 for up to around £110m.
Signalling confidence in the North Sea, Cairn and Premier plan to drill the Laverda exploration well north of Catcher in the second quarter.
However, Cairn has shelved plans for exploration drilling off Ireland pending discussions with partners and the country’s government.
Cairn has been pleased with the progress it has achieved off Senegal. The company made two finds off the West African country in 2014, which analysts have said look encouraging.
Mr Thomson said Cairn was delighted with the results of a well drilled in January to appraise the SNE find. They increased confidence it could be developed commercially.
He said: “Further appraisal activity this year will test the overall scale and extent of the resource base in Senegal, and is expected to lead to revision of the resource estimates.”
Cairn recently started drilling a second appraisal well on SNE. It is planning a third appraisal well, which will also target a new prospect.
But the company said it has relinquished two licences off Morocco, where it drilled without making any commercial finds.
Cairn retains acreage off Greenland, where it has spent around $1bn without making any commercial finds. It has no current plans to drill any more wells in the area.
The company made bumper finds in India under founder Sir Bill Gammell. It sold a majority stake in Cairn India to Vedanta Resources for $5.5bn in 2011, and paid $3.5bn of the proceeds to shareholders.
The restrospective Indian tax claim concerns events leading up to the 2007 flotation of Cairn India.
Cairn axed the jobs of around 90 employees and contractors in 2014 under a reorganisation programme.
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