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The giant oil field in India sold for a song by Shell

“…sold for a song by accident-prone Royal Dutch Shell yielded Cairn one of the country’s largest-ever finds and catapulted it into the FTSE 100.”


Cairn shareholders set for £1bn windfall when Indian oil fields are sold to Vedanta

Shareholders in Cairn Energy are in line for a windfall of at least £1bn, with the oil explorer close to completing a £5bn deal to sell its giant Indian oil fields to Vedanta Resources.

By Rowena Mason
Published: 10:58PM BST 14 Aug 2010

The Greenland explorer may confirm the move to sell a 51pc stake to London-listed Vedanta as early as today, after last-minute talks throughout the day yesterday.

Sir Bill Gammell, the chief executive of Cairn, would receive a minimum of £2m from his 0.2pc stake in the explorer if the pay-out were as low as £1bn.

Most investors expect the amount of money given back to them to run into multiple billions, however. The final cash return has not yet been finalised.

It could take the form of a special dividend or another more tax-efficient payment, according to sources close to the company.

Cairn plans to use the remaining cash from the sale to fund its ambitious deepwater drilling programme in the technically difficult region of Greenland.

It will still keep a minority 11pc stake in the 10 Indian fields, with Vedanta becoming the controlling shareholder.

Cairn’s share price rose by 3pc to 468.3p on Friday, while its Mumbai-listed arm, Cairn India, rose 4pc to 355.45p, as investors were cheered by the prospect of cash.

However, Vedanta shares fell 5.9pc to £20.53 on Friday, after dropping more than 7pc on Thursday, in anticipation of the heavily indebted company’s deal.

The $9bn company has around $4.5bn of liabilities and is planning capital expenditure of around $10bn over the next three years.

The acquisition is the first foray into the oil sector for Vedanta, which is majority owned by Anil Agarwal, an Indian billionaire and London resident.

The move will expand Vedanta away from its core business of producing zinc, copper, iron ore and aluminium.

Analysts have raised concerns about how it will fund the deal following an agreement to acquire $1.3bn of African zinc mines from Anglo American in May.

“It already has debt on the balance sheet, a very substantial capital expenditure programme and is buying Anglo Zinc for $1.3bn,” said Liam Fitzpatrick, a mining analyst at Credit Suisse.

Yesterday, the Indian authorities pointed out that they had not yet given approval and would scrutinise the deal closely.

State-owned ONGC is a partner in the Rajasthan fields, which are considered a strategic national asset.

Cairn acquired the Indian fields from Shell in 1997 for just $7m, spinning them off into Cairn India as a separate listed subsidiary 10 years later. Oil production from the fields in Rajasthan is expected to meet around 6pc of India’s demand.

The sale could see Cairn shrink and drop out of the FTSE 100 index or cling on at the bottom.

But analysts from Merrill Lynch said earlier this year that the company’s $400m Greenland exploration programme gave it the potential to double in size if it strikes oil.

The company has now started the high-risk drilling campaign in one of the world’s least explored areas, where scientists believe there is significant geological potential for discoveries.

Greenland gave Cairn the go-ahead for the first two out of four wells in June and it began drilling last month. The results are due towards the end of this month.

“Cairn Energy selling part of its stake in Cairn India makes sense as it could monetise part of the value in India now and free up cash for Greenland exploration and perhaps a special dividend. Retaining a stake in Cairn India would also enable Cairn to benefit from any further exploration upside,” said Richard Griffith, an analyst at Evolution Securities.


Related comment on Shell Blog by MUSAINT on Sunday 15 August 2010 :

I know that I have commented on this age old story about Shell selling their Rajasthan acreage before (this story and my comments are probably like a cracked record), but, the issue should be put at the doorstep of 2 Shell individuals – namely Messrs. Wildig and Parsley. I know I have been corrected by somebody previously, but, these two individuals killed off Shell’s E&P presence in the sub-continent (that includes Pakistan which has also proved a money earner for Premier Oil). Probably the Swiss inbred & nodding-donkey Bichsel signed the final death-knell for the sub-continent but Parsley and Wildig were the real culprits. Why oh why was an idiot PE (Wildig) by background given the responsibility to defend exploration decisions?? Hard-nosed that he was, I liked the genuine ability of someone such as Murris to decide on entry or exit on a country. The likes of Bichsel / Parsley and most especially Wildig had absolutely no idea.


The giant oil field sold for a song by Shell: 5 January 2010

THE CITY INTERVIEW: Sir Bill Gammell hopes to score a try in the Arctic: 29 April 2009: ts most lucrative decision was to prospect in the Rajasthan region in the north-west of India. Drilling a desert prospect sold for a song by accident-prone Royal Dutch Shell yielded Cairn one of the country’s largest-ever finds and catapulted it into the FTSE 100.

Daily Telegraph (UK): Tiof field holds key to Cairn: “Oil wild-catters, dedicated to sniffing out oil reserves in the world’s most uninhabitable places, have had a gushing year. Cairn is the leader, having outwitted its rival, Shell, to strike black gold in India. The enormous find, plus the high oil price, catapulted Cairn into the FTSE 100.” ( 13 Nov 04

The Sunday Telegraph: Cairn’s desert storm: The oil minnow bought the rights to drill in the Rajasthan wilderness from Shell for a paltry £4m. Its hunch paid off spectacularly and Cairn is now a FTSE100 company.: “Since that time, its market capitalisation has more than quadrupled to over £3bn today.”: “At an oil price of around $50 per barrel, that production will translate into $2bn worth of net cashflow for Cairn.” Sunday 20 November 2005

Daily Express (UK): Shell reflects ups and downs of the oil trade: Perhaps the most embarrassing episode came when Shell sold its stake in a 50/50 joint venture in an Indian oilfield to its partner Cairn Energy for a mere £4million — the field proved to have enough oil in it to increase Cairn’s share price by 300 per cent and propel it into FTSE100.”

Arabies Trends: The crisis at Shell: The company’s embarrassment deepened on March 10th, when the small Scotland-based Cairn Energy announced a spectacular oil strike in a concession in India that the oil giant had sold it 18 months earlier for a meager $7 million.

The Times: Natural resources: Scottish group’s oil strike is jewel in India’s crown: “The discovery of oil at Mangala single-handedly catapulted Cairn from relative obscurity into a FTSE 100 company, poured further mockery on Royal Dutch Shell at the time of its reserves scandal — the Rajasthan block was originally Shell’s, but was relinquished to Cairn three years ago…”: November 19, 2005

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