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The Scotsman: Oil bonanza for man who took on Shell and won

The Scotsman: Oil bonanza for man who took on Shell and won


17 Aug 2004

WHEN Bill Gammell stepped forward to accept the gong for Scottish Entrepreneur of the Year a few weeks ago, he turned to the assembled high-fliers and made a typically self-deprecating remark.

“I am only fortunate to be the leader of the team,” the chief executive said. “Winning this is a terrific recognition for the outstanding people at Cairn Energy.”

As a former Scotland rugby international, he knows plenty about being a team player, but his individual achievements are increasingly being recognised beyond the realm of his peers.

He is now gaining a reputation as perhaps the country’s most successful businessman of the past 12 months, leading his oil exploration company from Edinburgh minnow to the brink of joining the FTSE 100. And yesterday his importance was underlined by his own board of directors.

Cairn Energy has confirmed that it is setting aside £4.3 million of cash to buy thousands of its own shares, which it expects to award to Mr Gammell and a handful of his senior colleagues as a reward for their stellar work.

The company has yet to decide how much will go to the top man himself, but based on the carve-up of share options it distributed last year, Mr Gammell will receive about 30 per cent of the cake. Throw in a couple of assumptions, and if he sold the shares tomorrow he would pocket about £4 million.

It places him in the top league of earners in Scotland’s business community. The Royal Bank of Scotland’s chief executive, Sir Fred Goodwin, took home £3.44 million in basic salary, bonus and benefits last year. The housebuilder Stewart Milne, and the property magnate David Murray, both banked cheques in the region of £3 million. The Stagecoach founder Brian Souter was another high-roller, collecting about £36 million only last month when his company handed out cash to its shareholders.

Cairn Energy is currently valued at about £2.4 billion, making it Scotland’s fifth-biggest stock market company, behind only the Royal Bank of Scotland, HBOS, ScottishPower and Scottish & Southern Energy.

Mr Gammell has long known how to pick a winner. In the early 1980s he backed a US oil baron named George Bush – just as his father had backed George Bush Snr in the 1950s. During his time at Stirling University he spent student holidays in Texas, helping out at the future president’s oil company.

And the Prime Minister, Tony Blair, opened the Edinburgh offices of Cairn shortly after he was elected in 1997 – a favour to his former classmate at Fettes.

After he became president, Mr Bush Jnr’s first words to Mr Blair are reported to have been: “I believe you know my old friend Bill Gammell.”

But the expertise he pulls on to succeed is not all from the world’s movers and shakers. In a recent interview with The Scotsman, his experience of rugby – including five caps for Scotland – came to the fore.

He said: “This isn’t all about me. As the chief executive of the company, I get to bring the ball over the line and score the try. But somebody had to pass me the ball first. Actually, we have a squidgy, wee rugby ball here in the office which says on it ‘pick up the ball and run with it’.”

Commercially, the father of two had proved a smart operator on two occasions well before this year’s major success in striking oil in India. In the early 1990s he bought into an area of the Gulf of Mexico for $100,000, or some £55,000. It was worth about $35 million (£19 million) just three years later. And in the late 1990s Cairn also had success with gas discoveries in Bangladesh.

“Long-term thinking” and “total focus” are phrases often heard when oil managers speak about Mr Gammell’s achievements. Says one oil industry executive, formerly of the Aberdeen energy services giant Wood Group: “He clearly is giving Cairn a very firm focus and a relatively long-term strategy.

“They’ve zeroed in on a very small number of selective markets in South Asia, and they’ve not let them get distracted. That comes from the top. Clearly Bill is steering them down a very definite path.”

Mr Gammell’s entrepreneurial approach is also particularly notable. He has tried the reverse of many his peers.

Most Scottish oil firms have tried to build a base in the UK before branching out to foreign shores. Mr Gammell has taken Cairn overseas from the start, and taken on the risk of operating in foreign markets.

Close relations between firms make most oil executives uneasy about commenting on their peers. But one expert in Edinburgh, who asked for her name not to be disclosed, summed up Mr Gammell with a story from the early 1990s.

“Go back to those days when Cairn shares were at their lowest,” she said. “Bill was very concerned. He’d say, ‘What do I need to do to get them up? This share price is a totally unfair reflection of the people and this company.’

“Rather than sitting back and saying, ‘Time will tell what we’re made of’, he sat down and worked out a strategy. He sent the right signals that Cairn was going somewhere. He’s always had that leadership. That focus. A lot of chief executives are distant with their companies. Bill is passionate.”

Cairn Energy’s chairman, Norman Murray, is equally enthused by Mr Gammell’s approach to business. “His leadership style is consensual, not dictatorial,” he says. “He will sound out his colleagues. And he’s not frightened to hire people who are brighter than he is.”

Most who have dealt with Cairn Energy have been surprised by what one describes as “the truly collegiate atmosphere” Mr Gammell has developed at the company.

“If you have a meeting and all the top guys are there, they’ll have an argument right in front of you. Bill is always willing to listen. He’s passionate enough to have the debate.”

Passionate, too, about the share price. Mr Gammell’s personal wealth is intimately connected with Cairn’s stock market value. He is the company’s single biggest individual shareholder, with about 1.09 million shares – or a stake of a little less than 1 per cent. His personal value has increased from about £4.3 million to £15.1 million on the back of this year’s rise in the shares.

The ascent began in January this year when Cairn struck vast quantities of oil in India. It was the culmination of almost a decade of hard work and self-belief. It was in 1996-7 that Mr Gammell held meetings with oil giant Shell over a joint venture the two companies had started in western India. Mr Gammell believed the Rajasthan Basin could yield huge volumes of the black stuff. Shell was less sure.

Together, the partners had been handed a licence by the Indian government to explore around the area. But they had been given a deadline of 2005 to declare the oilfields “viable”. Shell was unhappy about the time constraint – still eight years away, but with much to do in the meantime. Mr Gammell was willing to take the risk.

Shell sold Cairn its 50 per cent stake in the field for just $7.5 million – about £4 million. It was a big bet. To put it in context, Cairn was betting about a fifth of the profits it made last year. It paid off. On 18 January, tests from Rajasthan delivered the news Mr Gammell had never doubted. “I seem to remember letting out a ‘yippee’ of some sort”, he told The Scotsman at the time – before adding: “I was just delighted for everyone at the company.”

Since January the company has struck oil four times in western India. It is still at the stage of drilling test wells, and will not start pumping oil for some time. But a measure of the confidence that investors have in the company’s ultimate success is its share price. As 2004 dawned, each share was changing hands for about 380p. As stock markets closed last night the price was about 1,450p.

But Mr Gammell’s rewards prove just how extraordinarily valuable he has become to Cairn Energy. The cost of his personal chunk of the shares will probably be about £1.2 million. Cairn expects to make profits this year of between £15 million and £16 million. Do the maths, and this means Mr Gammell will receive share options equivalent to about 8 per cent of the profits.

The Royal Bank’s Sir Fred, by comparison, led it to profits of £7.15 billion last year. He has undoubtedly been critical to the group’s expansion – without his efficiency, the costs of becoming a global player could easily have spiralled and shareholders would have been hurt.

No-one is pretending Cairn Energy’s success is down to Mr Gammell alone. It is blessed with an extraordinarily talented team of geophysicists and engineers, who have given Mr Gammell the confidence to press ahead with huge gambles.

But the pay-off from his leadership is finally coming back to him. If Cairn continues to strike it rich, Mr Gammell can expect several years of multi-million-pound bonuses, and plenty more gongs to come.

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