FT: SHELL DID NOT TURN DOWN THE BEATLES BUT IT CERTAINLY MISSED OUT ON THE KINKS BY SELLING THE RAJASTHAN FIELDS TO CAIRN ENERGY

By Ed Crooks
Published: January 8 2007 02:00 | Last updated: January 8 2007 02:00

Sir Bill Gammell’s contention that the oil industry is “all about creativity” is nowhere better illustrated than in Cairn India’s oil fields in Rajasthan, writes Ed Crooks.

Cairn Energy bought out Royal Dutch Shell’s 50 per cent share in the acreage for $7.25m in the first half of 2002 and it has gone on to create a business worth more than $6bn (£3.1bn).

For Shell it is perhaps not quite the oil industry’s equivalent of turning down the Beatles, but certainly of missing out on the Kinks.

Sir Bill is understandably reluctant to crow over how he profited from Shell’s poor judgment.

“Beauty is in the eye of the beholder,” he says, pointing out that a company of Shell’s vast size would have needed to make a much bigger discovery than one that made such a material difference to Cairn.

But even for Shell, a half-share in $6bn is worth taking seriously.

Shell had signed a licence on the block back in 1995 and began exploring it in conjunction with Cairn Energy later in the decade.

A series of deals took Cairn’s share from an initial 10 per cent up to 50 per cent, and an exploration well was drilled.

“The first well was drilled and Shell didn’t want to drill another one and Cairn wanted to drill a second,” Sir Bill says.

The logs taken up from the well looked terrible, but there was said to have been some oil on the logging tool used to take records from the well.

“Our technical people had a hunch, and we kept with it,” Sir Bill says.

In January 2004, when Cairn made the biggest onshore oil find in India for two decades, that hunch paid off.

But there were more wells drilled before the eventual great success and Sir Bill is keen to reject the idea that the company had a random lucky break.

“While it looks like a complete overnight sucess, we had $100m on the table,” he says.

The question for him now is whether he can reproduce that success, or whether – for him and his team – it really was a once in a lifetime discovery.

Sir Bill says the two main lessons he has learned in his career are, “with technical people, you must double the risk and halve the reward on anything that they tell you” and “to get as large an acreage position as possible in any deal that you do”.

The first might incline investors to still be cautious about the profits that will flow from Rajasthan. But the second has already paid off handsomely.

Copyright The Financial Times Limited 2007

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