Edinburgh-based Cairn – led by former Scottish rugby international and founder Sir Bill Gammell – currently owns 62.4 per cent of Cairn India, which struck oil in Rajasthan in 2004.
Cairn is selling most of its stake for up to 8.5 billion dollars (5.5bn) after buying out Shell from an exploration joint venture between 1997 and 2002 – for a sum thought to be in the millions – before the transformational discovery six years ago.
The sale of up to 51 per cent to Indian miner Vedanta Resources will allow Cairn to invest more resources in its Greenland drilling activities as well as making a "substantial return of cash" to investors, Sir Bill said.
The firm first entered India in the early 1990s and made the discovery in the Mangala field at its sixteenth attempt in 2004. This was the largest onshore discovery in India for more than 20 years and propelled Cairn to become the country's fourth largest oil and gas company.
The company, which has interests in 11 exploration blocks in India and Sri Lanka, has since made 25 further discoveries. It believes there are four billion barrels of oil in the region, of which around 1 billion is recoverable.
First production began from the Mangala field last year.
Cairn Energy will sell a maximum 51 per cent of the Indian business to Vedanta, leaving the firm with a minimum stake of just under 11 per cent in the company.
Sir Bill – who attended the Fettes College in Scotland with former Prime Minister Tony Blair – has just under three million shares in Cairn Energy, while deputy chief executive Mike Watts has around 2.4 million.
Shares in the prospector rose 3 per cent on confirmation of the deal but Numis Securities analyst Sanjeev Bahl said Cairn Energy would be a "very different kettle of fish" following the sale.
He said: "The large proportion of the company's value will be in its high risk/reward Greenland exploration portfolio. This high percentage of exploration exposure, and implied share price volatility, may not appeal to holders with lower risk appetites."