Rider to pull down Cairn India's profit share from Rajasthan oil by $1.68 billion

Cairn India's profit share from Rajasthan oil fields will fall by $1.68 billion, if riders imposed by the government for approving parent Edinburgh-based Cairn Energy's stake sale to London-listed miner Vedanta Resources are accepted.

India's cabinet on Thursday approved Cairn Energy selling a 40-per cent stake in Cairn India to Vedanta Resources, subject to the buyer and seller agreeing to cost recovery of royalty in the Rajasthan fields, according to reports in the Indian media.

Cairn India will not have to pay any royalty, while state-owned ONGC Ltd will continue to pay royalty on its behalf to the state government, The Economic Times reported, quoting unnamed sources.

The levy, however, will be added to project costs, which are first deducted from oil sale revenues before profits are split between partners and the government, it said.

Accepting this condition by Cairn Energy or Vedanta will lower Cairn India's profit over the approved life of lasting till 2020 from $7.43 billion to $5.75 billion.

The lower profits have been calculated at approved peak output of 175,000 barrels a day and considering a crude oil price of $70 per barrel. The present net value of Cairn India's loss of profitability is $1.39 billion, a little more than the $800 million concession in the purchase price that Vedanta has already got from Cairn Energy, the newspaper reported.