Directors of Cairn Energy have sold shares worth more than £3 million after reaping the rewards of the company’s success with the drill bit in India, which has put them in line for bumper payouts in future.

Led by chief executive Sir Bill Gammell, who netted £550,000, the seven members of the executive team sold 731,000 shares at 448.09p. A total of 900,000 shares worth around £4m were released to the executive directors under a Long Term Incentive Plan (LTIP) from 2006.

The share release follows a huge increase in the value of Cairn Energy, which started production last year from the first of a series of bumper discoveries that it made in India.

The beneficiaries include Mike Watts, the geologist who is masterminding Cairn’s pioneering hunt for oil off Greenland after leading the exploration drive in India. Mr Watts netted £370,000 by selling all of the shares that were released to him under the LTIP.

Chief operating officer Malcolm Thoms raised £950,000.

The shares were released to directors on Wednesday following the expiry of a one-year holding period that applied to issues made under the LTIP.

The share awards concerned were conditional on the performance of Cairn Energy’s share price against a basket of oil and gas firms, including Aberdeen-based Dana Petroleum, over a three-year period.

Cairn’s market capitalisation has increased from £3.2bn in November 2006 to around £6.2bn now.

It was £560m in January 2004 before Cairn made the first of its big finds in Rajasthan state.

At current prices directors could be in line to receive further shares worth a total of around £35m under the 2006 and 2009 LTIPs – if Cairn’s shares perform at the top end of a range of oil and gas stocks over the periods set by the remuneration committee.

A former Scotland rugby international, Sir Bill could net around £7m under LTIPs, if the maximum awards vest.

The size of the potential payouts may turn heads in some quarters at a time when the issue of executive reward is generating fierce debate.

However, a spokesman for Cairn Energy said: “These LTIPs are part of a long-term structure. Cairn’s record of creating substantial value for shareholders is widely known.”

Asked what the decision by five of the seven directors to sell all of the shares released to them on Wednesday said about Cairn’s prospects in Greenland, he said: “All members of the Cairn management team are long-term holders of equity positions in the company.

“Today’s announcement does not change that.”

After retaining 111,000 of the 226,000 shares that were released to him on Wednesday Sir Bill owns 2,877,018.

These represent 0.2% of Cairn Energy’s issued share capital. They were worth £12.6m at yesterday’s closing price of 437p.

Mr Watts has 2,444,424 shares worth £10.7m. In total directors hold 8,135,856 shares worth £35.5m.

These will entitle directors to substantial payouts if Cairn Energy completes the planned disposal of a controlling interest in the Cairn India subsidiary to Vedanta Resources for up to $8.5bn (£5.4bn).

Cairn Energy has said it will distribute the bulk of the proceeds to investors.

Directors of listed firms often sell shares to settle tax liabilities that are triggered when LTIP awards vest.