Daily Telegraph: Consultants check Cairn oil reserves

Daily Telegraph: Consultants check Cairn oil reserves

“pressure from investors to ensure that the reserves estimate presented to the City is watertight in the wake of the Shell debacle.”

By Christopher Hope, Business Correspondent (Filed: 19/08/2004)

Cairn Energy has hired a respected independent US oil reserves consultant to double-check the size of its four oil finds in Rajasthan, northern India.

The Scottish oil explorer feels the move is necessary to reassure investors after Shell shocked the market by downgrading its “proven” reserves tally by 23pc earlier this year.

Cairn has been a stock market sensation this year after its share price more than trebled following its Indian discoveries and it is now poised to enter the FTSE 100 early next month.

Cairn has retained Dallas-based DeGolyer and MacNaughton to evaluate the reserves on its Rajasthan field, estimated to be about 1.85 billion barrels.

The company has asked DeGolyer to produce its estimate in time for Cairn’s interim results on September 7, when analysts are expecting a further update on the reserves.

A senior source at Cairn said there was pressure from investors to ensure that the reserves estimate presented to the City is watertight in the wake of the Shell debacle.

Analysts forecast that, of the 1.85 billion barrels, 370m-650m can be classified as “recoverable”. More finds are likely with 15 more wells due to be drilled by Christmas.

The Cairn insider said: “The industry certified itself in the past – but in the future self-certification will not be acceptable. Investors will see what we have been saying and a world authority has said. It is the way the industry will have to go.”

DeGolyer is a 65-year-old company and has 180 staff at offices in Dallas, Houston, Moscow and Calgary.

Gary McGilvray, chief executive officer, declined to comment on whether the company was working for Cairn, citing client confidentiality.

However, he confirmed the consultancy was busier since Shell’s problems emerged. DeGolyer was 10pc to 20pc busier during the traditionally quiet summer months, he said.

“Some of it is to do with Shell and the extreme attention that has been focused on the reserves issue,” he said.

Smaller oil and gas companies are often required to verify reserves independently by banks which are funding exploration programmes.

However, one director confirmed that investors were applying greater scrutiny to reserve levels. “Shareholders are asking more questions about reserves than they used to,” he said.

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