The Guardian: Notebook: Time to grow up

The Guardian: Notebook: Time to grow up

This is the firm that snatched an exploration licence for the Indian state of Rajasthan from Shell for the comical price of £10m – just before Shell owned up to its serial over-statement of its reserves. Cairn proceeded to make a string of discoveries…”

8 Sept 04

In these days of heady oil prices, it was strange to see an oil company reporting a 40% slump in half-time profits yesterday. But then Cairn Energy is not a normal company – or at least Cairn has enjoyed a rather abnormal year.

This is the firm that snatched an exploration licence for the Indian state of Rajasthan from Shell for the comical price of £10m – just before Shell owned up to its serial over-statement of its reserves. Cairn proceeded to make a string of discoveries in Rajasthan and seems to have identified up to 400m barrels of recoverable crude in a field that may contain 2bn barrels.

Investors have responded by setting Cairn’s share price ablaze and yesterday – with the company’s market capitalisation up from about £500m to £2.3bn in the space of nine months – the company was confirmed as a new member of the FTSE 100 index.

Which is where this corporate fairy tale begins to get a little uncomfortable.

Bill Gammell, the Scottish rugby international and student friend of President Bush, has a colourful reputation – befitting a man whose job involves searching out resources in some of the world’s more inhospitable places.

But his business smacks of being something of a one-well wonder rather than the stable and sober recipient of all that pension and insurance money that supports the top flight of listed British companies. Footsie status is about more than market capitalisation. It brings a raft of new responsibilities, such as for corporate social responsibility, intensity of City investment research, boardroom governance, managing investor expectations, and so on.

It is not clear that Cairn’s executive team have fully grasped this yet. Yesterday, for example, the company seemed to have difficulty explaining why exactly profits are down so sharply at a time when crude oil is the hottest commodity on the block. Instead, all the focus seemed to be on when and where the next big share price-pumping exploration find might materialise.

Mr Gammell’s firm has come a long way in a very short space of time. It now has some maturing to do.

http://www.guardian.co.uk/business/story/0,,1299334,00.html

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