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Sri Lanka’s first gas field – re-affirming Cairn India’s exploratory excellence
Cairn Lanka (Pvt) Limited, a wholly owned subsidiary of Cairn India,
has made a Gas Discovery in the CLPL-Dorado-91H/1z well, drilled in a
water depth of 1,354 m., located in the block SL 2007-01-001, Mannar
Basin, Sri Lanka. Cairn Lanka (Pvt) Limited is the Operator and has a
100% participating interest in the block. A gross 25 m. hydrocarbon
column in sandstone between depths of 3,043.8 – 3,068.7 m. has been
interpreted to be predominantly gas bearing with some liquid
hydrocarbon potential. Further drilling will be required to establish
commerciality. This well is the first to be drilled in Sri Lanka in 30
years and the first successful discovery in the country. Cairn has
committed $ 100 mn for its 3-well drilling campaign in this block.
Depending upon the results of this campaign, reserves estimate,
appraisal program & commercialization would be discussed with the Sri
Lankan Govt. It is to be noted that the regulatory structure in Sri
Lanka is still evolving and the country imports 100% of its crude
requirement.
Expect approvals for production ramp up in Rajasthan soon
Consequent to Cairn India’s acceptance of royalty as a cost
recoverable item and cess liability on its share of production, the
Board of ONGC has issued its NOC to the Cairn-Vedanta deal. We believe
that this is a major step forward for the consummation of the deal as
well as for obtaining the necessary approvals for production ramp up
from Mangala and production start from Bhagyam. We expect news flow
regarding production ramp up to be positive near term triggers for the
stock going forward.
Outlook
We expect production levels to be ramped up to 210,000 bpd by Q4CY12.
At our long term Brent estimate of $ 95/bbl, we expect FY11-13 sales
CAGR of 34% and PAT CAGR of 18%. We expect EPS of Rs 37.5 and Rs 46.5
in FY12 & FY13 respectively. We expect free cash flows of Rs 33 bn &
Rs 70 bn during FY12 & FY13 respectively.
Valuation
We have valued Cairn India using NPV valuation for MBA (including EOR)
and EV/boe for other Rajasthan fields, Ravva & Cambay and risked
prospective resources in Rajasthan. Following the steep correction in
the stock price, we upgrade our rating to BUY with a target price of
Rs 334, translating to an upside of 23.4%. The price target translates
into EV/boe of $ 12.6/bbl on 2P reserves.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sri Lanka’s first gas field – re-affirming Cairn India’s exploratory excellence
Cairn Lanka (Pvt) Limited, a wholly owned subsidiary of Cairn India,
has made a Gas Discovery in the CLPL-Dorado-91H/1z well, drilled in a
water depth of 1,354 m., located in the block SL 2007-01-001, Mannar
Basin, Sri Lanka. Cairn Lanka (Pvt) Limited is the Operator and has a
100% participating interest in the block. A gross 25 m. hydrocarbon
column in sandstone between depths of 3,043.8 – 3,068.7 m. has been
interpreted to be predominantly gas bearing with some liquid
hydrocarbon potential. Further drilling will be required to establish
commerciality. This well is the first to be drilled in Sri Lanka in 30
years and the first successful discovery in the country. Cairn has
committed $ 100 mn for its 3-well drilling campaign in this block.
Depending upon the results of this campaign, reserves estimate,
appraisal program & commercialization would be discussed with the Sri
Lankan Govt. It is to be noted that the regulatory structure in Sri
Lanka is still evolving and the country imports 100% of its crude
requirement.
Expect approvals for production ramp up in Rajasthan soon
Consequent to Cairn India’s acceptance of royalty as a cost
recoverable item and cess liability on its share of production, the
Board of ONGC has issued its NOC to the Cairn-Vedanta deal. We believe
that this is a major step forward for the consummation of the deal as
well as for obtaining the necessary approvals for production ramp up
from Mangala and production start from Bhagyam. We expect news flow
regarding production ramp up to be positive near term triggers for the
stock going forward.
Outlook
We expect production levels to be ramped up to 210,000 bpd by Q4CY12.
At our long term Brent estimate of $ 95/bbl, we expect FY11-13 sales
CAGR of 34% and PAT CAGR of 18%. We expect EPS of Rs 37.5 and Rs 46.5
in FY12 & FY13 respectively. We expect free cash flows of Rs 33 bn &
Rs 70 bn during FY12 & FY13 respectively.
Valuation
We have valued Cairn India using NPV valuation for MBA (including EOR)
and EV/boe for other Rajasthan fields, Ravva & Cambay and risked
prospective resources in Rajasthan. Following the steep correction in
the stock price, we upgrade our rating to BUY with a target price of
Rs 334, translating to an upside of 23.4%. The price target translates
into EV/boe of $ 12.6/bbl on 2P reserves.
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