Cairn India, which is 69 per cent owned by London-listed Cairn Energy, is very close to securing the vital approval it needs to begin work on the pipeline to transport the oil from its vast Rajasthan oil fields, the Indian government has said.
A senior official in India’s petroleum ministry told the Financial Times he expected a deal to be signed by February 15, giving ample time for the pipeline to be completed on schedule for Cairn to begin deliveries by June next year.
His comments are an encouraging sign for the most important asset of Cairn Energy, which releases its 2007 trading update on Thursday.
But if the delays that have dogged the approval have finally been resolved, it will remove an uncertainty that has been hanging over the company.
Cairn’s shares re-entered the FTSE 100 index in the autumn, helped by the rise in the oil price.
The company has become more positive about the production potential in Rajasthan, and Credit Suisse recently suggested that peak output could be 190,000 barrels a day, up from a previous estimate of 150,000.
However, analysts have seen the lack of clarity over the timetable and commercial terms for building the pipeline from the field to an oil terminal on the coast as a threat to the company’s prospects.
The Indian government had been stalling over whether to allow Cairn to recover its share of the $800m (£403m) cost of building the pipeline under the production sharing contract for the Rajasthan fields.
However, M.S. Srinivasan, the secretary to Murli Deora, the petroleum minister, told the FT he was ”very confident we can resolve [the pipeline issue] by mid-February”.
Sir Bill Gammell and Rahul Dhir, Cairn India’s chairman and chief executive, had lunch in London on Friday with Mr Deora.
They were said by Mr Srinivasan to have come away ”feeling extremely reassured.”
Cairn had been very close to the point where it would have had to decide whether to proceed without cost recovery for the pipeline, at an estimated cost of $150m, or to delay the date for first oil from Rajasthan, at a cost of $700m-plus a year.
Gordon Brown, the UK prime minister, is said to have intervened personally on Cairn’s behalf during his recent visit to India.
Mr Srinivasan said another disagreement with Cairn, over whether a “cess” tax (surcharge) should be paid on the oil, would be treated separately.
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