The Guardian: Cairn strikes it rich on land Shell sold
Tuesday January 20, 2004
Cairn Energy has made a massive find in India worth up to $500m (£278m) on acreage sold to it 18 months ago by Shell for $7m. The discovery sent the British oil company's share price soaring 40% to 518p and is another embarrassment for Shell, which has recently been forced to downgrade its global reserves by 20%.
Cairn - led by former Scottish rugby player Bill Gammell, who counts both Tony Blair and George Bush among his friends - hit significant quantities of oil with its N-B-1 exploration well in Rajasthan, north-west India.
Initial estimates suggest up to 1bn barrels of oil, of which up to 200m could be recoverable at a price of about $4 a barrel.
"It's very exciting. Further evaluation and appraisal is required but I am confident this discovery in isolation has the potential to transform the value of Cairn's portfolio," Mr Gammell said.
Cairn holds a 100% stake in the field but the Indian state oil group Oil & Natural Gas Corp has a right to 30% of any development.
Analysts confirmed the discovery was significant and was made more interesting because it is close to other much smaller fields found by Cairn.
They said it was unlikely to lead to any "black goldrush" by the oil majors which - like Shell - have steered clear of a country marked by volatile politics and bureaucracy.
"Cairn is into high impact exploration and every now and then it works. The company has a very capable exploration director and good people on the ground," said Tony Alves, an analyst with Investec Securities.
The find is a "company maker" and is large by North Sea standards but it cannot be compared with the huge discoveries the leading oil companies have made in places such as Angola and around the Caspian Sea.
Cairn, which is Britain's largest pure exploration and production group, gradually bought into the Rajasthan area from Shell with the final deal involving a 50% stake for $7.2m.
Analysts estimate that the net after tax value of the field over its lifetime is about $500m, in line with the company's new stock market valuation after the share price rise. Cairn is now increasing its exploration in the region with three rigs lined up for new wells.
The company has already lined up meetings over the next couple of weeks with the Indian government about potential developments. It expects to pipe the crude to New Delhi for refining.
The exploration and production sector has generally benefited from higher crude prices but investors have lost hope in recent years that successful drilling can change a small independent's fortunes overnight.
Mr Gammell attended Fettes public school, where he was a contemporary of Tony Blair. He knows George Bush through family connections in the oil business.
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