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The Times: Tempus: Cairn Energy

The Times: Tempus: Cairn Energy: “and yesterday it announced its fourth, from a Rajasthani field it nabbed off Shell for just £4 million two years ago.”

By Angela Jameson

August 11, 2004

CAIRN ENERGY makes discovering oil in India look easy. It has declared three major discoveries in the sub-continent since January alone and yesterday it announced its fourth, from a Rajasthani field it nabbed off Shell for just £4 million two years ago. In that time, Cairn’s shares, up 6 per cent yesterday to £14, have leapt by 283 per cent. But now that the discoveries have been made, investors want to hear how all that oil in the ground can be turned into cash in the bank. Development of the fields will cost hundreds of millions of pounds, but given the City’s appetite for Cairn shares, fundraising should not be a problem. The question is whether Cairn will want to develop its own discoveries.

There is talk that Cairn will look to auction off its Rajasthan assets. With analysts suggesting that the entire block could contain up to one billion recoverable barrels of oil once this year’s drilling programme is completed, potential bidders will most probably be some of the world’s major oil and gas companies.

Like China, India is experiencing phenomenal economic growth and is desperate to reduce its reliance on oil imports. Cairn’s Rajasthan discoveries are only 150km from an existing pipeline network, which makes them very attractive to a major producer. Two years ago, India’s Oil and Natural Gas Co, the state-owned group, was thought to be mulling over a £500 million bid for Cairn. Today’s bidder would have to increase that by a factor of at least five. If the majors are not interested in developing Cairn’s fields, the group could choose to become a leading Indian oil producer itself — with a huge market on its doorstep.

Cairn has demonstrated that there is much more to this company than was apparent a year ago. The question is whether the shares have run ahead of reality. Cairn still has under way an aggressive £100 million drilling programme, which could give more upside. However, for those of a more cautious nature, it looks an appropriate time for profit-taking.

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