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Cairn Energy and Vedanta Resources on Thursday extended the deadline for a $9.6 billion deal for Cairn’s India assets, reflecting optimism the deal will get done a day after the government deferred a decision.

Both companies have extended the date by which all conditions must be completed or waived to 20 May 2011 to accommodate the completion of the open offer for Cairn India shares, Cairn Energy said in a statement.

The two companies had earlier set an April 15 deadline to seal the long-pending deal, first announced last August.

“Cairn and Vedanta have agreed that the put and call options shall not be enforceable or exercisable. Vedanta has also agreed that its pre-emption right shall not be enforceable or exercisable,”

Cairn Energy has agreed to sell a majority stake in Cairn India to Vedanta, but the deal has been delayed due to a dispute over royalty payments by Cairn India’s partner, state-run Oil and Natural Gas Corp.

ONGC, which has a 30% holding in the Cairn-operated Rajasthan fields in western India, pays 100% of the royalties.

India’s oil ministry has been pushing to share the royalty burden between ONGC and Cairn India. Both Cairn and Vedanta have opposed that move. Any changes in the royalty structure would impact valuations and could jeopardise the deal, analysts have said.

On Wednesday, the government stuck to its stance on royalties and referred the matter to a panel for further review, after discussing it in a meeting in which they were expected to make a final decision. The move cast new doubt over the deal.

The deal would be the largest in India’s oil and gas sector and could help boost investor sentiment in Asia’s third-largest economy.

Vedanta on Wednesday said it would go ahead with its open offer as scheduled, reflecting optimism for the deal. The open offer by Vedanta unit Sesa Goa would open April 11 and close April 30.

Cairn India shares were trading 0.5% lower in a weak Mumbai market.

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