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Cairn India and ONGC JV has commenced production from Rajasthan’s
Bhagyam field. Production is expected to ramp up to peak level of 40
kbpd by FY12 end, taking total production from Rajasthan fields to 165
kbpd; we have already assumed the same in our numbers. While the next
major trigger for the stock will be approval to increase Mangala
production from 125 kbpd to 150 kbpd, pipeline capacity of only 175 kbpd
will limit overall production. We value Cairn at INR320/share (March 2012
target) assuming Brent to average USD95/bbl in FY13. Maintain ‘HOLD’.
Oil Ministry nod to Bhagyam production of 40 kbpd
The Cairn‐ONGC Rajasthan JV (70:30) has obtained approval from the Oil Ministry to
start production from the Bhagyam field in the RJ‐ON‐90/1 block. The JV will increase
production to a peak of 40 kbpd by FY12 end. With Mangala field producing 125 kbpd,
Rajasthan block’s total gross production will rise to 165 kbpd; we have already assumed
the same in our numbers. Further increases in production will have to come from
Mangala and Aishwarya. Cairn is awaiting approval to increase Mangala output from
125 kbpd to 150 kbpd. While this will take its total production to 210 kbpd, pipeline
capacity of 175 kbpd is a bottleneck. Consequently, we estimate FY13 production of
175 kbpd (vs. FY12 full year average of 140 kbpd).
Asset life of ~13 years at peak production level
The Rajasthan block has 2P reserves of 656 mmbbls and 2P+contingent reserves of 964
mmbbls (FY11 AR data). We estimate peak production of 210 kbpd from all three fields
from FY14 (Mangala 150 kbpd, Bhagyam 40 kbpd, Aishwarya 20 kbpd), at which the
asset would have a life of 8.6 years on 2P and 12.6 years on 2P+contingent reserves.
Outlook and valuations: Stretched; maintain ‘HOLD’
We have a negative view on crude for FY13 and estimate Brent to average USD95/bbl
on back of weakening demand and rising supply (Libya and North America). Assuming
USDINR at 50 in FY13 and long term crude price of USD95/bbl, we value Cairn at
INR320/share (March 2012 target). Every USD1/bbl increase in long term crude prices
will increase our SOTP by INR3.2/share. Maintain ‘HOLD/Sector Performer’.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cairn India and ONGC JV has commenced production from Rajasthan’s
Bhagyam field. Production is expected to ramp up to peak level of 40
kbpd by FY12 end, taking total production from Rajasthan fields to 165
kbpd; we have already assumed the same in our numbers. While the next
major trigger for the stock will be approval to increase Mangala
production from 125 kbpd to 150 kbpd, pipeline capacity of only 175 kbpd
will limit overall production. We value Cairn at INR320/share (March 2012
target) assuming Brent to average USD95/bbl in FY13. Maintain ‘HOLD’.
Oil Ministry nod to Bhagyam production of 40 kbpd
The Cairn‐ONGC Rajasthan JV (70:30) has obtained approval from the Oil Ministry to
start production from the Bhagyam field in the RJ‐ON‐90/1 block. The JV will increase
production to a peak of 40 kbpd by FY12 end. With Mangala field producing 125 kbpd,
Rajasthan block’s total gross production will rise to 165 kbpd; we have already assumed
the same in our numbers. Further increases in production will have to come from
Mangala and Aishwarya. Cairn is awaiting approval to increase Mangala output from
125 kbpd to 150 kbpd. While this will take its total production to 210 kbpd, pipeline
capacity of 175 kbpd is a bottleneck. Consequently, we estimate FY13 production of
175 kbpd (vs. FY12 full year average of 140 kbpd).
Asset life of ~13 years at peak production level
The Rajasthan block has 2P reserves of 656 mmbbls and 2P+contingent reserves of 964
mmbbls (FY11 AR data). We estimate peak production of 210 kbpd from all three fields
from FY14 (Mangala 150 kbpd, Bhagyam 40 kbpd, Aishwarya 20 kbpd), at which the
asset would have a life of 8.6 years on 2P and 12.6 years on 2P+contingent reserves.
Outlook and valuations: Stretched; maintain ‘HOLD’
We have a negative view on crude for FY13 and estimate Brent to average USD95/bbl
on back of weakening demand and rising supply (Libya and North America). Assuming
USDINR at 50 in FY13 and long term crude price of USD95/bbl, we value Cairn at
INR320/share (March 2012 target). Every USD1/bbl increase in long term crude prices
will increase our SOTP by INR3.2/share. Maintain ‘HOLD/Sector Performer’.
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