The Observer: Whose eyes are on Cairn Energy?

Sunday 6 June 2004

Is Cairn Energy about to become another British oil exploration and production company doing so well that it will attract predatory interest from one of the majors?

We have seen it happen with Lasmo and Enterprise, medium-sized exploration companies, swallowed by larger competitors. Cairn was yesterday's minnow, but now it is growing fast thanks to promising discoveries off the Indian coast.

A year ago, Cairn's stock traded at £3, now the price is £11; several brokers reckon £15 is not an unreasonable target in the short term. Cairn's shares soared last week after a successful drilling report at its 'appraisal' well in north Rajasthan. But the firm produces just 32,000 barrels a day. Enterprise notched up 200,000 a day before it was taken over by Shell for £3.5 billion in 2002. So isn't Cairn's share price too high?

Well, no. This business is about more than production; it is also about reserves (verifiable ones, of course). And the more successful Cairn's drilling in India is, the more it looks as if the company is sitting on a mini gold mine.

If the shares really go to £15, the company will be valued at £2.5bn - making it nearly as big as Enterprise prior to the Shell takeover. Are you thinking what I'm thinking?

http://observer.guardian.co.uk/business/story/0,6903,1232157,00.html