Edinburgh's Cairn Energy plans shareholder bonanza as Indian tax dispute nears end
Cairn Energy, the Edinburgh-headquartered oil and gas explorer, has revealed that a long-running tax dispute with India is nearing its conclusion allowing it to return hundreds of millions of pounds to investors.
Bosses said they expect the country's government to hand over $1.06 billion (£770 million) after officials seized a stake in its Indian operations as part of a tax payment they claimed was owed.
Both sides have been embroiled in legal disputes through international courts ever since but recent changes to India's tax laws led to the Scots firm being offered a refund in return for ending its litigation.
As a result, Cairn said it proposed to hand back up to $700m (£506m) to shareholders.
In a half-year report announcement, the firm told investors: "The group is considering entering into statutory undertakings with the government of India in respect of new legislation, which would enable the refund of retrospective taxes collected from Cairn in India by way of asset seizures since 2014."
It added: "In accepting the terms of the new legislation in India, Cairn would be required to withdraw its international arbitration award claim, interest and costs and to end all legal enforcement actions in order to be eligible for the refund."
The money will be handed out to shareholders via a special dividend of $500m and a share buyback programme, where the company buys up shares on the open market, for some $200m.
The rest of the money will be used to expand the business, which also announced plans to buy Shell's western desert assets in Egypt to rely less heavily on offshore development.
Chief executive Simon Thomson said: “Our significant acquisition in Egypt, which we expect to complete shortly, adds material gas-weighted production, low-cost, near-term growth and attractive exploration potential, in a region with strong demand trends.
“We intend to use our differentiated financial flexibility to add further scale to our production base and look forward to the next phase of strategic delivery.”
He added: “Progress in resolving our Indian tax issue and active portfolio management leave Cairn well positioned to deliver growth from a sustainable business, focused on generating further value and returns for shareholders.”
The company's dispute with India stretches back to 2006 when it restructured its Indian operations and passed ownership of its Rajasthan oil fields to Cairn India.
In 2012 the country's government passed laws that could retrospectively tax mergers and acquisitions, including the restructuring of Cairn, for capital gain tax payments.
Authorities subsequently seized 10 per cent of Cairn India's shares, leading to a dispute that was heard in global arbitration courts, with Cairn seeking damages for lost profits from being unable to invest.
A hearing in The Hague ruled in Cairn's favour but the arbitration decision has not been enforced.
In March, Cairn unveiled two major deals – including the sale of its stakes in the UK Catcher and Kraken oil fields in the North Sea – that it said will drive a “step-change” in the scale and growth potential of the business.