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Daily Telegraph: Cairn oil bonanza nets chiefs £4m bonus

Daily Telegraph: Cairn oil bonanza nets chiefs £4m bonus

“Cairn’s finds in India are a source of continued embarrassment to Shell, which sold its 50pc share in the concession to Cairn for just $7.25m.”

By Christopher Hope, Business Correspondent (Filed: 16/08/2004)

Cairn Energy, the Scottish oil explorer, will take a charge of more than £4m at its half-year results in three weeks’ time to cover the cost of paying out long-term bonuses to its management.

Cairn has been one of the biggest risers on the stock market this year after discovering 1.85billion barrels of oil in northern India. Last week the shares jumped 13pc after Cairn found oil for the fourth time.

Kevin Hart, finance director, told analysts last week that the cost of paying directors’ bonuses under its long-term incentive plan, which is linked to Cairn’s share price, was likely to be £4.3m for the six months to June 30.

The bonus will knock about a fifth off Cairn’s half-year pre-tax profits, now forecast to be between £15m and £16m. The profits, down from £26.3m in 2003, were also hit by a slowdown on a different field off south India.

The incentive plan payments are linked to the rise in Cairn’s share price when it jumped from 401p to £14.10 between January 1 and June 30, 2004. The shares cleared £15 last week, before closing on Friday at £14.89. The company, whose value has increased from £637m to £2.37billion so far this year, is poised to enter the FTSE 100 on September 8, the day after its interim results.

The executive directors’ good fortune is in addition to the profits made on the value of the 1.9m Cairn shares which they control. The biggest single boardroom shareholder is Bill Gammell, chief executive, who owns 1.09m shares, according to company documents. His stake has increased in value from £4.3m to £15.1m this year.

Mr Gammell, who saw his pay rise by 36pc to £583,000 last year, declined to comment on the plan. However, he said he was very excited about the prospects for the 5,800 sq km concession – the equivalent of 12 North Sea blocks. “It has been a great year. We have a long-term vision. We have a lot to bring and feel that it has a lot of potential,” he said.

Bruce Evers, analyst at Investec Securities, said that few in the City would be unhappy about the bonus payments because the four oil finds have nearly quadrupled the value of Cairn’s shares. Mr Evers said that the management were receiving the cash “simply because the share price has gone beserk – and it will be much bigger in the second half”.

He added: “Nobody will begrudge them it. It seems like fair reward for a great result for shareholders. Four million pounds is a drop in the ocean – the market would not begrudge them £20m, to be honest. If the share price does well it is right that the directors benefit.”

Mr Evers said big investors such as Deutsche Bank and Fidelity have sold down large stakes in Cairn as the share price has risen. “The performance of Cairn has saved a lot of fund managers’ performance this year,” he said.

Cairn’s fourth biggest investor, with a 5.5pc stake, is Isis Asset Management, the activist fund manager that has been an outspoken critic of excessive executive pay schemes. However, Richard Singleton, Isis’s head of corporate governance, was relaxed about the payments. “This is exactly the kind of reward for success that we support,” he said.

Cairn’s finds in India are a source of continued embarrassment to Shell, which sold its 50pc share in the concession to Cairn for just $7.25m.

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