SHARES in Cairn Energy plunged by eight per cent after it signalled a further delay in the resolution of its long-running tax dispute with authorities in India – and suffered an early setback in its new drilling campaign off Mexico.
Edinburgh-based Cairn had hoped the international tribunal which has been considering its $1.4 billion claim against the Indian government would reach a decision before the end of the year.
But it informed the market yesterday that it would now be next summer before the Arbitral Tribunal makes an award.
READ MORE: Edinburgh oil and gas firm suffers exploration setback off Shetland
News of the delay appeared to spook investors, who also reacted to the disappointing result of the first of four wells Cairn has committed to drilling off Mexico.
Cairn’s tax dispute with India can be traced back to January 2014, when the country’s then government launched a claim against the company under retrospective taxation powers.
By then Cairn had sold a majority stake in its Cairn India subsidiary to Vedanta for $5.5bn in 2011, going on to return $3.5bn in cash to shareholders.
Cairn retained a 10 per cent holding in the India business following the Vedanta deal. However, the Indian government froze the stake as the tax dispute raged.
READ MORE: Cairn Energy suffers drilling setback
When subsequent talks held by Cairn with a successor Indian government failed to reach a resolution, the company received a tax demand for $1.6bn in March 2015.
Cairn responded by launching a £1.4bn claim against the Indian government under the UK-India Bilateral Investment Treaty. The Scottish firm’s claim against the Indian government is being considered by an international tribunal, and in March it expressed hope that a decision would be reached this year. But the tribunal has now indicated it will be the summer of 2020 before a decision is reached, without being in a position to commit to a specific date.
Cairn said: “The Arbitral Tribunal has indicated that, whilst it is not yet able to commit to a specific award released date, it expects to be in a position to issue the Award in the summer of 2020.”
It added: “Cairn continues to have a high level of confidence in the merits of its claims in the arbitration and is seeking full restitution for losses of more than US$1.4 billion.”
The cost to Cairn of bringing its case to an international tribunal has run into tens of millions of pounds. In addition, the Indian government has been selling down Cairn’s shareholding in Vedanta and withholding dividends.
Cairn is demanding that its shareholding in Vedanta is restored to the level it was in 2015, and to be recompensed for its costs and dividends it has missed out on.
Meanwhile, Cairn reported a disappointing result on the first of four wells it will drill off Mexico. “The objectives were found to be dry and the well now be ... abandoned,” Cairn said, noting that drilling on the second well will begin in November.
The setback comes after Cairn said last week it had met with disappointment off Shetland, when the well it drilled on the Chimera prospect 84 miles east of Lerwick was dry. Shares in Cairn closed down 15.7p at 177.5p.
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