CAIRN INDIA : Well-oiled for another round of exploratory work

CAIRN India, which had recently raised its estimate of available petroleum reserves in its Rajasthan fields posted better-than-expected profits for the March 2010 quarter at Rs 258 crore. Its pipeline from Barmer to Salaya has become operational, which marks a key inflexion point in Cairn’s revenues and profits growth in the near future. While the company’s Mangala oil field commenced operations in August 2009, production could not be increased due to the lack of transportation infrastructure. The 590-km pipeline will now enable the company to sell its crude to private and PSU refiners in India. The company has already contracted to sell 1.43 lakh barrels of oil per day (bopd) to four domestic refiners. The company, which was producing 17,500 bopd during the quarter ended March 2010, has scaled it up to 63,000 bopd. But this could go up to 125,000 bopd by 2010-end once it commissions third production line. The approved plateau production rate of 175,000 bopd is likely to be achieved by next year. The company is hoping to push the plateau level further up to 240,000 bopd. The scaling up of Rajasthan fields enabled the company to raise its production on a working interest basis to 24,957 barrels of oil equivalent per day (boepd) this year from 17,264 boepd in FY09. The company generated over Rs 800 crore of cash from operations — almost same as last year — mainly due to a 22% fall in average realization of crude oil to $68.2 per barrel.

While the cashflows remain strong, the company is well-funded to carry on its exploration work. It had over Rs 2,600 crore of cash balance as at the end of March 2010. The company also has $850 million of unutilised loan from the $1.6 billion loan facility it had tied-up last year.

The company has been using innovative methods to optimise its production, while gathering more information about the geological formations in its Rajasthan fields. Improved knowledge has enabled it to raise the reservoir estimates to 1 billion barrels of recoverable reserves from Mangala, Bhagyam and Aishwarya fields apart from 125 million barrels from 20 small fields. The company continues to explore further in the area, while developing the discovered fields. This has enabled it to discover another resource potential in the Barmer basin, which it termed as ‘significant and as yet untested’. Investors can expect further augmentation to the company’s existing resource base in the years to come.