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Today, Cairn India (Cairn) announced second discovery (Nagayalanka‐SE‐1)
in the KG‐ONN‐2003/1 block. We believe this discovery is value accretive to
the tune of INR7/sh. and we henceforth increase our TP to INR326/sh.
Event: Cairn has announced an oil discovery in KG‐ONN‐2003/1 (KG basin onshore
block). It has 49% stake in the block, while ONGC holds the balance 51%. The discovery,
Nagayalanka‐SE‐1, is in addition to the earlier discovery Nagayalanka‐1Z. Nagayalanka‐
SE‐1 (spud on November 25, 2011) had a gross pay of 57m hydrocarbon column in
cretaceous sandstone between the depths of 4369.2‐4426m. At the testing intervals of
4385‐4387m and 4416‐4420m, MD flowed at an average of 70 bbl/day oil and 0.6
mmscf/day of gas. The company has indicated that it will need to drill appraisal wells to
establish the commerciality for production from the block. The extended second phase
of exploration for the block will end on August 07, 2012. Minimum Work Programme
(MWP) has already been achieved for the block.
Management comment: Cairn management has indicated the following:
• In‐place reserves for the two discoveries= 550 mn bbls (57 mn bbls for earlier
discovery and ~500 mn bbls for the recent one)
• Recoverable reserves are estimated at 10% or 55 mn bbls
• Recovery rates are low as the reservoir is tight and the company will have to do
fracking and stimulation for recovering oil
• However, the positive side was that the oil is light and low in viscosity, which
makes it easy to flow to surface.
• The Operating Committee (OC) was informed yesterday and DGH today about the
discoveries.
• The exploration team on KG‐ONN‐2003/1 block is the same as the team that
discovered hydrocarbons in Sri Lanka.
Our view: We believe while Cairn will operate the block during exploration, ONGC will
do so during production. Assuming USD10/bbl of value for reserves, net value accretion
for Cairn is USD270mn or INR13.5bn, implying value addition of INR7/share.
Consequently, our SOTP increases to INR326/share (INR319/share earlier). We have
assumed long‐term crude price at USD95/bbl while calculating this SOTP. We continue
to maintain ‘HOLD’ on the stock. Current stock price of INR357/share implies that the
stock has factored in long‐term crude at USD105/bbl.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Today, Cairn India (Cairn) announced second discovery (Nagayalanka‐SE‐1)
in the KG‐ONN‐2003/1 block. We believe this discovery is value accretive to
the tune of INR7/sh. and we henceforth increase our TP to INR326/sh.
Event: Cairn has announced an oil discovery in KG‐ONN‐2003/1 (KG basin onshore
block). It has 49% stake in the block, while ONGC holds the balance 51%. The discovery,
Nagayalanka‐SE‐1, is in addition to the earlier discovery Nagayalanka‐1Z. Nagayalanka‐
SE‐1 (spud on November 25, 2011) had a gross pay of 57m hydrocarbon column in
cretaceous sandstone between the depths of 4369.2‐4426m. At the testing intervals of
4385‐4387m and 4416‐4420m, MD flowed at an average of 70 bbl/day oil and 0.6
mmscf/day of gas. The company has indicated that it will need to drill appraisal wells to
establish the commerciality for production from the block. The extended second phase
of exploration for the block will end on August 07, 2012. Minimum Work Programme
(MWP) has already been achieved for the block.
Management comment: Cairn management has indicated the following:
• In‐place reserves for the two discoveries= 550 mn bbls (57 mn bbls for earlier
discovery and ~500 mn bbls for the recent one)
• Recoverable reserves are estimated at 10% or 55 mn bbls
• Recovery rates are low as the reservoir is tight and the company will have to do
fracking and stimulation for recovering oil
• However, the positive side was that the oil is light and low in viscosity, which
makes it easy to flow to surface.
• The Operating Committee (OC) was informed yesterday and DGH today about the
discoveries.
• The exploration team on KG‐ONN‐2003/1 block is the same as the team that
discovered hydrocarbons in Sri Lanka.
Our view: We believe while Cairn will operate the block during exploration, ONGC will
do so during production. Assuming USD10/bbl of value for reserves, net value accretion
for Cairn is USD270mn or INR13.5bn, implying value addition of INR7/share.
Consequently, our SOTP increases to INR326/share (INR319/share earlier). We have
assumed long‐term crude price at USD95/bbl while calculating this SOTP. We continue
to maintain ‘HOLD’ on the stock. Current stock price of INR357/share implies that the
stock has factored in long‐term crude at USD105/bbl.
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