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Cairn India has received a government approval that will enable it to proceed with the development of a pipeline to transport oil from its flagship fields in Rajasthan.
The approval from India's Ministry of Petroleum and Natural Gas ends a year-long wait that had kept investors on the edge of their seats wondering whether Cairn would be forced to foot the $800m cost of the pipeline on its own.
"This is a very positive development for the project," said Rahul Dhir, Cairn India's chief executive.
"Along with our joint venture partner ONGC, we have already invested more than $1bn in Rajasthan, and plan to invest an additional $2.6bn in the development over the next two years."
Cairn needs the pipeline to transport oil 585km from its Rajasthan fields in the interior to refineries on the coast.
Whether it received the go-ahead was seen as a test of India's viability for foreign oil investors.
It comes as India is conducting its seventh auction of oil exploration blocks, known as the New Exploration Licensing Policy VII, as part of which it is hoping to attract more global oil groups to invest.
Controlled by London-listed Cairn Energy, Cairn India had applied to the government to shift the "delivery point" for oil from its Rajasthan fields to Salaya on the coast of Gujarat, the western Indian state.
Cairn had wanted the shift to be incorporated into its production sharing contract so that it would be eligible to recover the cost of the pipeline under the normal terms of the agreement.
Following Wednesday's approval, Cairn will be able to do this, though it will also have to revise its "field development plan" for Rajasthan, the blueprint for the project, to reflect the change.
It means there could still be delays, as the company will need a separate approval for the revised version of the field development plan.
Cairn has started preliminary work on the pipeline project, awarding contracts and breaking ground for a facility along the route.
The approval for the pipeline means the field could start operation on schedule in the second half of next year.
The project, which will have capacity of 175,000 barrels a day, is seen as crucial for India, which imports more than 70 per cent of its oil needs.
Cairn India shares closed down 4.67 per cent at Rs248.85 before the announcement on Wednesday, while the benchmark Sensex closed 0.52 per cent lower at 17,287.31.
