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Daily Telegraph: City Comment: Cairn sucks Shell dry

Daily Telegraph: City Comment: Cairn sucks Shell dry

Four strikes and Cairn hits big time

Traditionally, Indian elephants have big tusks and small ears. Now the big game hunters at Cairn Energy have discovered a new species, and it’s enough to send the company into the FTSE 100 index next month.

This elephant is black, rather than grey, and is under the ground rather than on it. It is, of course, a big new oilfield, and the timing could hardly be better. Cairn’s latest drilling report means that it has found nearly two billion barrels on just one-tenth of the area of its concession in northern Rajasthan. It plans to drill 15 more wells on the 5,800 sq.km block.

Cairn shares danced up to another new peak on the news and brokers are competing with their buy notes. They really like the shares, and don’t anyone dare suggest that a bullish note helps another part of the bank win the mandate to find a buyer prepared to pay billions (and fat fees) for Cairn.

Cairn is an “upstream” (exploration) company, so it will need a partner, at least, to exploit its new-found wealth. The downstream company that needs the oil most desperately is, of course, Shell, so Cairn’s success is doubly galling. Two years ago, Shell decided that the field was a white elephant and sold out to its partner, Cairn, for little more than the cost of the wells.

The elephant is a different colour altogether. Arrogance may allow a rival (Total?) to have first shot, but given its predicament, Shell cannot afford to be squeamish about elephant hunting.

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http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2004/08/11/ccom11.xml#3

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