Lower crude prices factored in… • Cairn India :: ICICI Securities

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Lower crude prices factored in…
• Cairn India reported its Q3FY15 results with revenues at | 3504 crore,
down 29.9% YoY above our estimate of | 3069.5 crore on account of
lower than estimated profit sharing with the government and PAT at
| 1349.6 crore, down 53.2% YoY marginally below our estimate of
| 1356.9 crore due to lower other income and a higher tax rate
• Average gross production from the Rajasthan block in Q3FY15 stood
at 1,80,010 boepd (our estimate: 1,81,667 boepd) whereas the net oil
& gas production for the company stood at 1,36,701 boepd (our
estimate: 1,36,778 boepd)
FY15 production on track as per guidance
The oil & gas production from Cairn India’s prolific Rajasthan block stood
at 1,90,881 boepd in Q4FY14 with an exit rate of FY14 at 2,00,000 boepd.
Just when production had started picking up, the company gave a muted
guidance for production levels from Rajasthan block for FY15, as a part of
their three year strategic plan. The gross production from the Rajasthan
block in Q3FY15 stood at 1,80,010 boepd, marginally below our estimate
of 1,81,667. The reason for the lower production in FY15E is that Mangala
production has come off the plateau before the implementation of
enhanced oil recovery (EOR) in Q4FY15. The work towards increasing
recovery rates at Bhagyam continues and will only reach the approved
level of production of 40,000 boepd with the support of EOR programme,
which is under discussion with their JV partner. The production volume
from Aishwariya field, as per the approval, has been ramped up to 30,000
bopd during the quarter.
Rajasthan production to increase at 6.5% CAGR over FY14-17E
The company plans to double its gas production from RDG through the
existing pipeline by Q4FY15 by installing additional compressors. The
growth in production in existing fields is expected to be achieved through
the EOR programme in MBA field (1,80,000-2,00,000 boepd), further
development of Barmer Hill (10,000-30,000 boepd) and development of
Rageshwari field (10,000-20,000 boepd). We expect the gross production
from the Rajasthan block at 1,98,539 boepd and 2,18,993 boepd in FY16E
and FY17E, respectively. The company will provide its capex guidance for
the next fiscal after Q4FY15 results.
Limited downside as crude prices expected to bottom out
A sharp fall in crude oil prices has led to a decline in Cairn India’s stock
price. However, the downside from the current level is limited as we
expect crude oil prices to bottom out and stabilise around $65/barrel in
the next two years. Operationally, the company has received continued
success on the Rajasthan exploration programme with commencement of
three major development projects during the quarter including first
polymer injection at Mangala field under the EOR programme. The Ravva
field continues to demonstrate low risk, high value exploration through
RE-6 discovery with estimated production of ~4000 bopd. The concerns
on the future cash utilisation of the company and risk of corporate actions
(merger with Sesa Sterlite) still remain, which may impact the shareholder
value creation. Cairn is currently trading at an implied Brent crude price of
US$50/barrel. We estimate Cairn’s fair value at | 279/share (Rajasthan
fields at | 158/share) assuming $65/barrel for FY16E and FY17E and
$70/barrel from FY18E onwards. We have a BUY rating on the stock.

LINK
http://content.icicidirect.com/mailimages/IDirect_CairnIndia_Q3FY15.pdf