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Cairn India
We met Cairn India at the Deutsche Bank Namaste India conference. Management
maintained its sanguine outlook on the Rajasthan production ramp-up and its exploratory
drilling plans over the next 12 months. The key takeaways from the meeting were:
�� Management maintained its guidance of Rajasthan peak production of 175kbpd by end
CY11. This includes 40kbpd production from Bhagyam field (to start in 2HCY11) and the
rest from Mangala field. This will mean 10kbpd higher production than the 125k bpd
peak production presently approved for Mangala.
�� Mangala crude oil realization was at a 13.5% discount to Brent in Q3FY11. The
management expects it to remain at the higher end of the guidance (10-15% discount) in
the near term given the higher light-heavy spreads currently.
�� Management reiterated that it would not accept any condition in the Cairn-Vedanta deal
that would be detrimental to its valuation.
�� Cairn will commence exploratory drilling in Sri Lanka in July 2011. It will take delivery of a
5th generation drill ship for this purpose and plans to drill 3 exploratory wells.
�� Reiterate Buy as preferred beneficiary of high oil prices: We reiterate our Buy on Cairn
India (INR400 TP) as we expect it to benefit from high crude oil prices and ramp-up in
Rajasthan production, which we believe is still not fully factored in its stock price. At the
current market price, the stock is discounting a Brent crude price of US$92/bbl to
perpetuity compared with spot price of US$113/bbl. Cairn India's valuation increases by
INR3.5/sh for every US$1/bbl increase in oil price. We assume oil production from
Rajasthan to average 160k bpd in FY12 and 185k bpd in FY13E as against 125k bpd
currently. The company has turned net cash positive (US$194mn) as reported in the last
quarter driven by strong operating cash flows (US$455mn Q3FY11).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cairn India
We met Cairn India at the Deutsche Bank Namaste India conference. Management
maintained its sanguine outlook on the Rajasthan production ramp-up and its exploratory
drilling plans over the next 12 months. The key takeaways from the meeting were:
�� Management maintained its guidance of Rajasthan peak production of 175kbpd by end
CY11. This includes 40kbpd production from Bhagyam field (to start in 2HCY11) and the
rest from Mangala field. This will mean 10kbpd higher production than the 125k bpd
peak production presently approved for Mangala.
�� Mangala crude oil realization was at a 13.5% discount to Brent in Q3FY11. The
management expects it to remain at the higher end of the guidance (10-15% discount) in
the near term given the higher light-heavy spreads currently.
�� Management reiterated that it would not accept any condition in the Cairn-Vedanta deal
that would be detrimental to its valuation.
�� Cairn will commence exploratory drilling in Sri Lanka in July 2011. It will take delivery of a
5th generation drill ship for this purpose and plans to drill 3 exploratory wells.
�� Reiterate Buy as preferred beneficiary of high oil prices: We reiterate our Buy on Cairn
India (INR400 TP) as we expect it to benefit from high crude oil prices and ramp-up in
Rajasthan production, which we believe is still not fully factored in its stock price. At the
current market price, the stock is discounting a Brent crude price of US$92/bbl to
perpetuity compared with spot price of US$113/bbl. Cairn India's valuation increases by
INR3.5/sh for every US$1/bbl increase in oil price. We assume oil production from
Rajasthan to average 160k bpd in FY12 and 185k bpd in FY13E as against 125k bpd
currently. The company has turned net cash positive (US$194mn) as reported in the last
quarter driven by strong operating cash flows (US$455mn Q3FY11).
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