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05 September 2004
Sunday Times
Cairn boss joins the oil giants

Bill Gammell has transformed Cairn Energy with an oil find in Rajasthan. In less than a year it has gone from a minnow to the brink of the FTSE 100

BILL GAMMELL, chief executive of Cairn Energy, is crammed into the back of a Landrover Defender. He is squinting against the thick hot dust, grinning at his fellow explorers who cling to the vehicle as it lurches across the Rajasthan desert.

Moments later the men are on their hands and knees, scratching at something in the dust. Next the wilderness comes alive with huge lorries, men in hard hats, towering drilling structures and Cairn's logo.

'We believe there are up to one billion barrels of oil under the Rajasthan desert,' says a soothing voice. 'Such is the confidence of Cairn Energy in this region that it has bought a further 850 square kilometres of land. And Cairn has raised another $ 100m for further development.'

Gammell reappears, standing proudly in front of a vast drilling rig. 'The past six months have been exciting,' he says. 'Our market capitalisation has grown from 6m to 2billion.'

The corporate video ends. Gammell, looking less dusty in a plain grey suit, springs out of his chair next to me, his long arms gesticulating in excitement.

'We made the video a couple of weeks ago. It's just a taster so we can show what we are all about,' he says, racing around the room, grabbing bits of paper.

'And here's another plan: I'm making some pills (sweets with motivational messages) -they are called Brave Pills -it's what you have to take working for this company.'

Even though we are in the bland surroundings of Cairn's Edinburgh headquarters and I have been here only 10 minutes, I am already getting that impression.

Gammell dashes out into his secretary's room, returning a few minutes later with apologies. 'We've just got clearance from the Indian government for two new exploration blocks and we've had to put out an announcement.'

It is good news for Cairn -and for the City's finance houses, where this company, which had hardly been heard of a year ago, has been causing something of a storm.

In just eight months Cairn has transformed itself from a Scottish oil and gas minnow into an international energy powerhouse, the biggest independent oil producer in Europe. Its share price has soared from 27p to nearly 15. Next week Cairn's interim results are expected to catapult the company into the FTSE 100.

Gammell, a former rugby player for Scotland and, extraordinarily, a childhood chum of both George W Bush and Tony Blair, is slightly surprised by the speed of the rise.

'I never, ever planned for the FTSE 100, mostly because big is not always beautiful,' he says in a soft Scottish accent. 'But I knew we were going to be successful. We have a good proposition and a brilliant team.'

To those outside the world of oil and gas, Cairn's rise can seem too good to be true. Striking a vast oil reservoir may transform a company's fortunes, but how permanent is this change? And does it really earn a company a place alongside blue-chip stalwarts such as BP, HSBC and Tesco?

'You sound like my wife,' says Gammell.

She sounds very sensible, I reply.

'Look, we have not come from nowhere, despite what some people in the City might think,' says Gammell. 'We have been public for 15 years. I have been chief executive for 15 years. During this time we have built an extremely talented team that has carefully pursued a clear and unchanging strategy. The past few months just show it works. And we are still in the early stages. I believe there is much further to go.'

Cairn owes its sudden rise to a decision made seven years ago, when Gammell shunned the oil fields already in production in Gujarat for an area a few hundred kilometers to the north in Rajasthan. Shell owned the rights there but was not convinced it had much potential. Cairn started buying Shell's stake, going from 10% to about 50% in 1998. Two years ago Cairn bought out Shell completely for 4m and kept drilling.

'By Christmas this year things were pretty tough,' says Gammell. 'We had spent $ 100m -a fifth of the value of the company -drilling wells and had not found the big one.

'It all changed in January. I was woken up at 5am at home in Edinburgh and was told we had struck a field. It was fantastic. But we still didn't know how big it was.'

In the following months it became more clear as Cairn struck oil four more times.

The news sent its share price through the roof and onto the City's radar screens.

Gammell is no geologist, but his affinity for oil goes back to his childhood.

Although he doesn't like talking about his connection to the Bush family, the friendship has had a profound influence on him.

Gammell was born in Edinburgh, the middle son of six children. His father, James Gammell, was the founder of Ivory & Sime, the fund-management group, which, in the 1950s decided to back a budding oil company being run by a Texan called George Bush.

Gammell senior joined the board of Bush's company and the families became firm friends. One summer 13-year-old George W Bush was sent over to the Gammells's Perthshire farm, where he was befriended by six-year-old Bill.

When George W Bush became president, his first words to Tony Blair, who had been a classmate, friend and debating partner of Gammell at Fettes, a public school in Edinburgh, were: 'I believe you know my old friend Bill Gammell.'

Many might be tempted to boast about this, but Gammell, in his quiet, boyish manner, is almost embarrassed.

'Well I suppose it is a bizarre coincidence,' he squirms. 'George W is a great friend. We had a lot of fun. I suppose it is a strange thing that Blair is prime minister too.'

Gammell went from Fettes to Stirling University where, despite spending student holidays on oilrigs in the North Sea and with the Bushes in Texas, rugby became his main focus. He rose from university to club teams and was soon playing for Scotland.

'I remember having the choice between going for my first Scotland cap or passing my accountancy exams,' he says. 'I went for the cap.'

Among training and playing for Scotland and going on several international tours, Gammell joined a small Edinburgh insurance broking company.

He decribes his time in broking as 'completely boring' but it was at this stage that he first named a firm Cairn, the Scots name for a pile of stones often found on hills to commemorate big climbs or guide walkers.

Cairn Insurance Brokers lasted only a year or two before Cairn Financial Services was founded. That gave way to Cairn Fund Management, where he pursued his interest in investing in oil.

Gammell spent the 1980s investing Scottish cash in oil fields in north America - with mixed results. Like other investors, he put most of the cash into exploration of known sites and only about 20% into higher-risk areas.

'I found that the safer wells rarely produced enough oil to make a difference,' he says. 'With the higher-risk ones, once you had found a decent well, there often wasn't enough cash to buy the land around it and so benefit from the bigger area.

I learnt a lot about risk versus reward during this time.'

In 1989 Gammell floated Cairn Energy on the stock market, with the shares worth 192p.

But he had emerged from his time in north America with a new attitude towards exploration. Shunning the method whereby oil explorers buy lots of plots in a known oil area, hedging their bets in the hope that at least one will come up trumps, Gammell decided instead 'to focus the risk'.

Gammell's game plan is to find oil in untapped areas and then buy as many of the rights as possible so his company owns the whole resevoir. The method is expensive -'You've got to have the financial stability to do it,' says Gammell. It is also risky but, as Cairn has proved in India, extremely effective when it works. Next, Gammell is taking his methods to Nepal where, apart from one well drilled by Shell a few years ago, there has no exploration for oil.

Gammell's success has earned him the title of Scottish entrepreneur of the year.

He is also director of the Scottish Institute of Sport and is setting up a new trust to sponsor and promote talented sports players from under-privileged backgrounds.

Despite his high profile, particularly in Scotland, Gammell is determined not to take all the credit for Cairn's success.

'I may be something like a playing coach,' he says. 'But our success depends on the team. We foster a culture where there are no glass ceilings and everyone's opinion counts.'

The company's success is undeniable, but Cairn is not without problems. Critics say that because all its operations are on the Indian subcontinent, Cairn has higher risk than other companies. The social, geological and political conditions only add to the risk. In Nepal, for instance, Cairn has already been attacked by nature groups for its potential impact on tigers. Politically, Cairn has had problems before when, in the mid-1990s, it found a huge gas well but the government would not allow the company to sell it. This time Gammell has played a crucial role in forging bonds with governments on the subcontinent.

So, on the eve of its entry into the FTSE 100, is Cairn a suitable investment for widows and orphans? For the first time in the interview Gammell pauses.

'Look, this company has risk,' he says carefully. 'But my rule in risk management is to halve the technicians' expectations and double the percieved risks and costs. This is one of the few industries where one or two finds can transform a company. On top of this, we work hard to make sure everything else is stable the finances, risks and so on.

'If people think we're just puff, they'll see.'

Andrew Davidson is away



AS SOON as he wakes up at 6am, Bill Gammell checks his e-mail for overnight drilling reports.

When he is at home in Edinburgh he has breakfast with the family and takes his boys to school for 8am.

At work, the day is dominated with teleconference meetings with the overseas offices in Dhaka, Chennai and Delhi as well as his five working oilrigs. He also has daily one-on-one meetings with senior management.

At 12.30pm Gammell usually plays squash with his chairman Norman Murray before a working lunch.

During the afternoon he tries to find time to walk around the office and talk to staff. 'The team approach is essential,' he says.

Gammell tries to leave by 6pm to attend his children's sports events and have dinner with the family.


BILL GAMMELL'S office is on the fourth floor of Cairn Energy's head office in Edinburgh, a building that was opened by Tony Blair soon after he was elected in 1997 as a favour to his old school chum.

The square room has large windows looking directly on to Edinburgh Castle and neighbouring Princes Street. It is dominated by a round table for meetings, Gammell's desk and a big flat-screen television set. Several geological maps, including one of the crucial Mangala oilfield in Rajasthan, reach from floor to ceiling on one wall.

On the window sills and a wooden bookcase are photos of Gammell's wife and two boys, as well as some shots of him playing rugby for Scotland.

The rest of his team sit just outside. Gammell says the door is always open for people to come in and chat, which he actively encourages.


Born: December 29, 1952

Marital status: married, with two children

School: Fettes College, Edinburgh

Universities: Stirling then Strathclyde

First job: trading accountant

Salary package: 360,000

Homes: Edinburgh, Elie in Fife

Car: BMW X5

Favourite book: currently any Dan Brown book

Music: classical

Film: Dead Poets Society

Gadget: squash racquet

Last holiday: Crete

Interests: family, squash,skiing, rugby



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