Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MAT credit pushes PAT above estimates; revenues and EBITDA in line
Cairn India’s (CIL) Q3FY11 revenues, at INR 31.0 bn (+15.3% Q-o-Q), were
broadly in line with our expectation of INR 30.3 bn. Net hydrocarbon production
during the quarter was at 100.3 kboepd, up 6.3% Q-o-Q, on account of production
ramp-up of Mangala crude. CIL reported production cash costs at USD 11.1/boe
(inclusive of cess) and SG&A expenses of USD 1.7/boe. Exploration cost, at USD
0.5/boe, was lower than expectations (USD 1.2/boe) due to slowdown in
exploration owing to delays in approvals. The company reported EBITDAX of INR
25.6 bn (USD 61.9/ boe), up 17.9% Q-o-Q, in line with our estimates (USD
61.1/boe). DD&A costs, in Q3FY11, were flat Q-o-Q at USD 6.9/bbl. CIL booked
MAT credit entitlement of INR 3.4 bn in Q3FY11. Consequently, PAT came in higher
than our estimate at INR 20.1 bn (estimate at INR 17.7 bn); PBT, at INR 22.1 bn,
was in line with our estimates of INR 21.8 bn.
Rajasthan crude production at 125 kbpd; crude discounts at 12.7%
Production of crude in Q3FY11 from Rajasthan’s Mangala fields remained stable at
124.9 kbpd. CIL management continued with the guidance of CY11 exit production
run-rate at 175 kbpd. We believe that the Bhagyam fields will have scaled to 40
kbpd by then (guided to start in H2CY11). Crude realisation for the quarter from
Mangala fields averaged USD 74.8/bbl, a 12.7% discount to Brent crude. Total cash
cost for Rajasthan crude stood at USD 2.7/bbl (USD 2.0/bbl for opex and USD
0.7/bbl for pipeline costs).
Outlook and valuations: Increasing SOTP to INR 360; maintain ‘HOLD’
We are positive on long-term crude prices, and CIL continues to be the most levered
play on crude. While we are broadly maintaining our earnings estimates, we have
increased our SOTP to INR 360/share (earlier INR 337/share) to account for
depreciated INR. We are assuming USD/INR at 46.0 perpetually. Triggers for the
stock remain in exploratory upsides and ramp-up in production, in line with
management’s expanded vision of 240 kbpd (we have factored in 210 kbpd).
Moreover, though media has been voicing the royalty issue, the statement by CIL’s
board (“any condition tied to the approval of the transaction, which can negatively
impact the value of the company, cannot be accepted.”) gives minority shareholders
the direction/stand of the existing management, which clearly is a comforting sign.
However, we believe the stock will hover at current levels due to uncertainties as GoI
delays approval for change of management control. We maintain ‘HOLD/Sector
Outperformer’ recommendation/rating on CIL. At INR 314, it is trading at P/E of
7.1x FY12E EPS.
Net hydrocarbon production up 6.3% Q-o-Q on Rajasthan block crude
CIL’s net hydrocarbon production in Q3FY11 was 100.3 kboepd, up 6.3% Q-o-Q, on
account of the production ramp up of Mangala crude. Gross production from Rajasthan
was 125 kbpd (working interest of 87 kbpd), up from 116 kbpd in the previous quarter.
Current run rate of production from Mangala field in the Rajasthan block is 125 kbpd.
Gross Ravva hydrocarbon crude production, at 29.7 kbpd, rose 0.9% Q-o-Q due to
operations around artificial lift, but fell 4.2% Y-o-Y due to field declines. Cambay gross
hydrocarbon production, at 9,988 boepd, declined 11% Q-o-Q and 21.6% Y-o-Y. To
enhance oil production from the field, the company has planned an infill drilling
campaign at Lakshmi fields.
Average hydrocarbon realisation, at USD 74.3/bbl in Q3FY11, jumped 9.6% Q-o-Q and
15.2% Y-o-Y. Blended crude realisation, of USD 75.9/ bbl, was up 9.2% Q-o-Q and 7.4%
Y-o-Y, while blended gas realisation was flat Q-o-Q at USD 4.5/mcf. Realisation from
Rajasthan fields stood at USD 74.8/bbl, at 12.7% discount to Brent crude.
Other highlights
• Ramp-up of production
• Management has maintained guidance of producing 175 kbpd from Rajasthan
block by CY11 end, with production from Mangala field expected to ramp up to
its production potential of 150 kbpd, subject to JV and GoI approval. Surface
facilities and midstream infrastructure are already in place, to support
immediate escalation in production from Mangala to 150 kbpd.
• Drilling of wells has commenced at Bhagyam fields, with 14 wells being drilled
during Q3FY11. Bhagyam field is expected to start production from H2CY11 and
thereby achieve a plateau rate of 40,000 bpd by end of CY11.
• Production from Aishwariya fields is expected from H2CY12, subject to approval
of JV and GoI. Currently, the field is under assessment for higher production
potential and design optimisation.
• Development drilling and well completion activities are on track with three
drilling rigs and one completion rig operating in the Mangala development area
currently. 125 Mangala development wells have been drilled so far, of which, 84
wells have been completed (55 already under production).
• Trains one, two and three are currently producing from the Mangala Processing
Terminal; construction of train four is on track and is expected to be
commissioned by H2CY12.
• Phase I of the EOR pilot (consisting of four injectors) has been completed;
consequently, water injection and production phase has commenced in
December 2010.
• Crude pricing/offtake: Currently, sales arrangements are in place for 143 kbpd
and discussions are on with GoI for further nominations. With the pipeline and
related facilities becoming operational, sales to both public and private refiners
continue at currently approved rate of 125 kbpd in Q3FY11. CIL estimates the
implied price realisation at ~10-15% discount to Brent (based on 12-month ending
December 2010 average prices).
• Midstream development: The ~590 km pipeline from Mangala Processing
Terminal to Salaya continued to deliver crude oil to different buyers. Work on the
Salaya to Bhogat section (~80 km) is under progress currently with completion
expected in H2CY12.
• Cash flow and cash: CIL had cash balance (net of borrowings) of INR 8.7 bn (USD
194 mn) as on December 31, 2010. Cash flow from operations was at USD 455 mn
in Q3FY11. CIL also booked higher MAT credit entitlement of INR 3.4 bn during
Q3FY11. Capex of INR 8.6 bn was incurred on Rajasthan block development during
Q3FY11; cumulative figure at INR 126.2 bn (USD 2.8 bn) till Q3FY11.
• Exploration programme: CIL had relinquished GS-OSN-2003/1 block during
Q3FY11 after completion of phase II of exploration programme (holding 49%
working interest, ONGC is the operator of the block). Exploration drilling is planned
to commence in July 2011 in the Sri Lankan block, SL 2007-01-001. Assessment of
RJ-ON-90/1 block continues for further prospects. Also, exploration activities are
underway at NELP blocks, KG-OSN-2009/3 and MB-DWN-2009/1, with 3D seismic
acquisition being planned during Q4FY12. Force Majeure has been declared in block
PR-OSN-2004/1 as the area has been designated as inaccessible by department of
space, GoI.
Outlook and valuations: Increasing SOTP to INR 360, maintain ‘HOLD’
We are positive on long-term crude prices, and CIL continues to be the most levered play
on crude. While we are broadly maintaining our earnings estimates, we have increased
our SOTP to INR 360/share (earlier INR 337/share) to account for depreciated INR. We
are assuming USD/INR at 46.0 perpetually. Triggers for the stock remain in exploratory
upsides and ramp-up in production, in line with management’s expanded vision of 240
kbpd (we have factored in 210 kbpd). Moreover, though media has been voicing the
royalty issue, the statement by CIL’s board (“any condition tied to the approval of the
transaction, which can negatively impact the value of the company, cannot be
accepted.”) gives minority shareholders the direction/stand of the existing management,
which clearly is a comforting sign. However, we believe the stock will hover at current
levels due to uncertainties as GoI delays approval for change of management control.
We maintain ‘HOLD/Sector Outperformer’ recommendation/rating on CIL. At INR 314, it
is trading at P/E of 7.1x FY12E EPS.
Company Description
CIL is an independent oil & gas exploration company, and has been promoted by Cairn
Energy, UK. It was formed to take control of all oil and gas assets of Cairn Energy in
India. After the public issue and corporate structure rejig, all subsidiaries with oil and gas
interests in India were consolidated under a company “Cairn India Holding’, in which, CIL
has a 100% stake. CIL’s total reserves and resources in production or under
development are 703 mn boe (D&M estimates). 92% of CIL’s reserves are contained in
the developing Rajasthan block (RJ-ON-90/1), with further reserves in Ravva, CB-OS/2
and KG-DWN-98/2.
Investment Theme
CIL continues to be the most levered play on crude (given our positive outlook over long
term), with a ~INR 2.7/share sensitivity on SOTP for USD 1.0/bbl change in long-term
crude prices. As the company nears certainty in meeting production schedules for its
Rajasthan block, and likely favourable midstream solution (pipeline) solution, CIL is our
bet on upstream play. With lower government share (< 50% till CY12), no royalty for
CIL, and market-determined crude prices, the Rajasthan block offers attractive fiscal
terms.
Key Risks
Higher discounts to benchmark prices for Mangala could affect CIL’s realisations, and
hence, our fair price.
Cess resolution at higher-than-assumed rates (INR 927/MT) could affect our fair SOTP
value. As CIL is the most leveraged oil play, lower crude prices could its valuations
significantly.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MAT credit pushes PAT above estimates; revenues and EBITDA in line
Cairn India’s (CIL) Q3FY11 revenues, at INR 31.0 bn (+15.3% Q-o-Q), were
broadly in line with our expectation of INR 30.3 bn. Net hydrocarbon production
during the quarter was at 100.3 kboepd, up 6.3% Q-o-Q, on account of production
ramp-up of Mangala crude. CIL reported production cash costs at USD 11.1/boe
(inclusive of cess) and SG&A expenses of USD 1.7/boe. Exploration cost, at USD
0.5/boe, was lower than expectations (USD 1.2/boe) due to slowdown in
exploration owing to delays in approvals. The company reported EBITDAX of INR
25.6 bn (USD 61.9/ boe), up 17.9% Q-o-Q, in line with our estimates (USD
61.1/boe). DD&A costs, in Q3FY11, were flat Q-o-Q at USD 6.9/bbl. CIL booked
MAT credit entitlement of INR 3.4 bn in Q3FY11. Consequently, PAT came in higher
than our estimate at INR 20.1 bn (estimate at INR 17.7 bn); PBT, at INR 22.1 bn,
was in line with our estimates of INR 21.8 bn.
Rajasthan crude production at 125 kbpd; crude discounts at 12.7%
Production of crude in Q3FY11 from Rajasthan’s Mangala fields remained stable at
124.9 kbpd. CIL management continued with the guidance of CY11 exit production
run-rate at 175 kbpd. We believe that the Bhagyam fields will have scaled to 40
kbpd by then (guided to start in H2CY11). Crude realisation for the quarter from
Mangala fields averaged USD 74.8/bbl, a 12.7% discount to Brent crude. Total cash
cost for Rajasthan crude stood at USD 2.7/bbl (USD 2.0/bbl for opex and USD
0.7/bbl for pipeline costs).
Outlook and valuations: Increasing SOTP to INR 360; maintain ‘HOLD’
We are positive on long-term crude prices, and CIL continues to be the most levered
play on crude. While we are broadly maintaining our earnings estimates, we have
increased our SOTP to INR 360/share (earlier INR 337/share) to account for
depreciated INR. We are assuming USD/INR at 46.0 perpetually. Triggers for the
stock remain in exploratory upsides and ramp-up in production, in line with
management’s expanded vision of 240 kbpd (we have factored in 210 kbpd).
Moreover, though media has been voicing the royalty issue, the statement by CIL’s
board (“any condition tied to the approval of the transaction, which can negatively
impact the value of the company, cannot be accepted.”) gives minority shareholders
the direction/stand of the existing management, which clearly is a comforting sign.
However, we believe the stock will hover at current levels due to uncertainties as GoI
delays approval for change of management control. We maintain ‘HOLD/Sector
Outperformer’ recommendation/rating on CIL. At INR 314, it is trading at P/E of
7.1x FY12E EPS.
Net hydrocarbon production up 6.3% Q-o-Q on Rajasthan block crude
CIL’s net hydrocarbon production in Q3FY11 was 100.3 kboepd, up 6.3% Q-o-Q, on
account of the production ramp up of Mangala crude. Gross production from Rajasthan
was 125 kbpd (working interest of 87 kbpd), up from 116 kbpd in the previous quarter.
Current run rate of production from Mangala field in the Rajasthan block is 125 kbpd.
Gross Ravva hydrocarbon crude production, at 29.7 kbpd, rose 0.9% Q-o-Q due to
operations around artificial lift, but fell 4.2% Y-o-Y due to field declines. Cambay gross
hydrocarbon production, at 9,988 boepd, declined 11% Q-o-Q and 21.6% Y-o-Y. To
enhance oil production from the field, the company has planned an infill drilling
campaign at Lakshmi fields.
Average hydrocarbon realisation, at USD 74.3/bbl in Q3FY11, jumped 9.6% Q-o-Q and
15.2% Y-o-Y. Blended crude realisation, of USD 75.9/ bbl, was up 9.2% Q-o-Q and 7.4%
Y-o-Y, while blended gas realisation was flat Q-o-Q at USD 4.5/mcf. Realisation from
Rajasthan fields stood at USD 74.8/bbl, at 12.7% discount to Brent crude.
Other highlights
• Ramp-up of production
• Management has maintained guidance of producing 175 kbpd from Rajasthan
block by CY11 end, with production from Mangala field expected to ramp up to
its production potential of 150 kbpd, subject to JV and GoI approval. Surface
facilities and midstream infrastructure are already in place, to support
immediate escalation in production from Mangala to 150 kbpd.
• Drilling of wells has commenced at Bhagyam fields, with 14 wells being drilled
during Q3FY11. Bhagyam field is expected to start production from H2CY11 and
thereby achieve a plateau rate of 40,000 bpd by end of CY11.
• Production from Aishwariya fields is expected from H2CY12, subject to approval
of JV and GoI. Currently, the field is under assessment for higher production
potential and design optimisation.
• Development drilling and well completion activities are on track with three
drilling rigs and one completion rig operating in the Mangala development area
currently. 125 Mangala development wells have been drilled so far, of which, 84
wells have been completed (55 already under production).
• Trains one, two and three are currently producing from the Mangala Processing
Terminal; construction of train four is on track and is expected to be
commissioned by H2CY12.
• Phase I of the EOR pilot (consisting of four injectors) has been completed;
consequently, water injection and production phase has commenced in
December 2010.
• Crude pricing/offtake: Currently, sales arrangements are in place for 143 kbpd
and discussions are on with GoI for further nominations. With the pipeline and
related facilities becoming operational, sales to both public and private refiners
continue at currently approved rate of 125 kbpd in Q3FY11. CIL estimates the
implied price realisation at ~10-15% discount to Brent (based on 12-month ending
December 2010 average prices).
• Midstream development: The ~590 km pipeline from Mangala Processing
Terminal to Salaya continued to deliver crude oil to different buyers. Work on the
Salaya to Bhogat section (~80 km) is under progress currently with completion
expected in H2CY12.
• Cash flow and cash: CIL had cash balance (net of borrowings) of INR 8.7 bn (USD
194 mn) as on December 31, 2010. Cash flow from operations was at USD 455 mn
in Q3FY11. CIL also booked higher MAT credit entitlement of INR 3.4 bn during
Q3FY11. Capex of INR 8.6 bn was incurred on Rajasthan block development during
Q3FY11; cumulative figure at INR 126.2 bn (USD 2.8 bn) till Q3FY11.
• Exploration programme: CIL had relinquished GS-OSN-2003/1 block during
Q3FY11 after completion of phase II of exploration programme (holding 49%
working interest, ONGC is the operator of the block). Exploration drilling is planned
to commence in July 2011 in the Sri Lankan block, SL 2007-01-001. Assessment of
RJ-ON-90/1 block continues for further prospects. Also, exploration activities are
underway at NELP blocks, KG-OSN-2009/3 and MB-DWN-2009/1, with 3D seismic
acquisition being planned during Q4FY12. Force Majeure has been declared in block
PR-OSN-2004/1 as the area has been designated as inaccessible by department of
space, GoI.
Outlook and valuations: Increasing SOTP to INR 360, maintain ‘HOLD’
We are positive on long-term crude prices, and CIL continues to be the most levered play
on crude. While we are broadly maintaining our earnings estimates, we have increased
our SOTP to INR 360/share (earlier INR 337/share) to account for depreciated INR. We
are assuming USD/INR at 46.0 perpetually. Triggers for the stock remain in exploratory
upsides and ramp-up in production, in line with management’s expanded vision of 240
kbpd (we have factored in 210 kbpd). Moreover, though media has been voicing the
royalty issue, the statement by CIL’s board (“any condition tied to the approval of the
transaction, which can negatively impact the value of the company, cannot be
accepted.”) gives minority shareholders the direction/stand of the existing management,
which clearly is a comforting sign. However, we believe the stock will hover at current
levels due to uncertainties as GoI delays approval for change of management control.
We maintain ‘HOLD/Sector Outperformer’ recommendation/rating on CIL. At INR 314, it
is trading at P/E of 7.1x FY12E EPS.
Company Description
CIL is an independent oil & gas exploration company, and has been promoted by Cairn
Energy, UK. It was formed to take control of all oil and gas assets of Cairn Energy in
India. After the public issue and corporate structure rejig, all subsidiaries with oil and gas
interests in India were consolidated under a company “Cairn India Holding’, in which, CIL
has a 100% stake. CIL’s total reserves and resources in production or under
development are 703 mn boe (D&M estimates). 92% of CIL’s reserves are contained in
the developing Rajasthan block (RJ-ON-90/1), with further reserves in Ravva, CB-OS/2
and KG-DWN-98/2.
Investment Theme
CIL continues to be the most levered play on crude (given our positive outlook over long
term), with a ~INR 2.7/share sensitivity on SOTP for USD 1.0/bbl change in long-term
crude prices. As the company nears certainty in meeting production schedules for its
Rajasthan block, and likely favourable midstream solution (pipeline) solution, CIL is our
bet on upstream play. With lower government share (< 50% till CY12), no royalty for
CIL, and market-determined crude prices, the Rajasthan block offers attractive fiscal
terms.
Key Risks
Higher discounts to benchmark prices for Mangala could affect CIL’s realisations, and
hence, our fair price.
Cess resolution at higher-than-assumed rates (INR 927/MT) could affect our fair SOTP
value. As CIL is the most leveraged oil play, lower crude prices could its valuations
significantly.
No comments:
Post a Comment