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10 March 2004
The Scotsman
Cairn soars on second Indian find

CAIRN Energy announced its second major Indian oil discovery in just three months yesterday as it posted record annual profits of £69.1 million.

The Edinburgh-based firm said the latest exploration well in its newly-christened Mangala field had estimated recoverable reserves of 20-80 million barrels. Although less than half the size of the last discovery in the area, the find raised hopes of more oil being discovered during an extensive drilling programme planned for the year ahead.

Cairnís shares - which have gained more than 80 per cent this year - jumped 21 per cent to close at 873.5p, valuing the firm at more than £1.3 billion. The rise was partly fuelled by growing expectations that Cairn will attract bid interest from the worldís oil majors.

The company also revealed that it plans to sell its last remaining interests in the North Sea "lock, stock and barrel" before the end of the year, leaving it free to concentrate on India, Bangladesh and new prospects in Nepal.

Cairn chief executive Bill Gammell - who saw the value of his stake increase by about £1.3m yesterday - said: "When youíve got two wells 60km north of where you first started drilling which have both come in, youíve got to be upbeat."

He added: "Weíre going to be drilling at least half a dozen exploration wells around the first two discoveries over the next few months. Thereís three rigs on site, weíre bringing in a fourth and possibly a fifth. After all, we only have until May 2005 to declare these finds commercial, otherwise the Indian government will revoke our licences."

Cairnís pre-tax profits of £69.1m represented a 58 per cent gain on 2002ís figure. Operating cash flow, one of the key measures of an oil companyís performance, soared 69 per cent to £122.2m. The company has no gearing and said it had net funds of £17.8m at the end of the year, compared to net debt of £34.8m last year.

Finlay Thompson, oil analyst at ABN Amro, said: "Iím increasing my target [share] price from 700p to 775p, but thereís a load of upside from there. The majors will all be interested, but I doubt Shell would have the brass neck to go back in."

Despite the solid performance, Gammell said there were no plans to start paying a dividend - in line with the companyís long-stated strategy of generating shareholder value through growth rather than income.

Cairnís existing funds, and a US$240m (£130m) revolving credit facility spread across a number of banks, will be used to develop the Mangala field and fund the drilling programme.

Cairn is selling its remaining minority stake in the North Seaís Gryphon field, which produced at an average rate of 1,564 barrels of oil equivalent per day (boepd) last year. Cairnís total production increased 37 per cent last year to 30,214 boedpd, boosted by the first full year of output from its Lakshmi gas field in eastern India.

Gammell said: "We havenít been active in the North Sea for ten years. Cairn has always been about finding the new frontier and creating the bandwagon for everyone else to jump on. Thatís what we plan to keep doing." 

IAIN DEY DEPUTY BUSINESS EDITOR



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