The Guardian: Shell's loss is Cairn's gain in second Indian oil strike
Wednesday March 10, 2004
Cairn Energy has made another spectacular oil strike in the Rajasthan district of India, heaping further embarrassment on Shell, which sold it the acreage for next to nothing.
Shares in the Edinburgh-based Cairn soared by 23% to 166.5p on the back of the second find close to what has become known as the Mangala field. The share price had already risen 7% on Monday in anticipation of more drilling successes and hopes of strong annual financial figures.
Cairn yesterday reported that pre-tax profits had roared ahead 58% on the previous year to reach a record of £69.1m due to strong oil prices and a 37% increase in production.
The success with well N-A-1, eight miles away from the first strike, is awkward for Shell because the Anglo-Dutch oil major, which has just sacked its chairman, sold the concession to Cairn 18 months ago for a meagre $7m (£3.7m). Some analysts believe Mangala is now worth up to $500m.
Cairn's chief executive, Bill Gammell - the former Scottish rugby player who counts Tony Blair and George Bush among his friends - was delighted with the latest find, even though it is smaller than the first.
"Further evaluation and appraisal is needed but I am confident this discovery will add further material value to Cairn's portfolio," he said.
The company is accelerating its drilling programme in the area, increasing the rigs from three to five and trying to drill up to 30 new holes in the next six months. Cairn is under pressure because its licence expires in May next year.
The Mangala field could produce around 50,000 barrels of oil a day and there are hopes that other potential new fields in the region could double this figure. Cairn is the toast of New Delhi: India produces only 600,000 barrels a day although its fast-growing economy requires 1.5m barrels of imported crude.
India's state-owned ONGC, which is currently being part-privatised, has the right to take a 30% stake in any new development.
Mr Gammell said he had no intention of bidding for a stake in ONGC, which has been on a privatisation roadshow of potential investors in Britain.
Cairn finances have been benefiting from the first full year of gas production from its Lakshmi field. It says it will be able to develop Mangala without having to bring in more equity, partly because it has no gearing and is selling down certain interests. The Scottish firm is buying more acreage from Shell - in Bangladesh - and is planning exploratory drilling in northern India and Nepal.