Cairn India’s plan to increase oil output delayed by Vedanta review
NEW YORK: Cairn India Ltd.'s plan to boost oil output by 20 percent from its Mangala field is delayed as the Indian government reviews Vedanta Resources Plc's $9.6 billion bid for the company, Chief Operating Officer Rick Bott said.
The company "had thought the end of the year was a reasonable time frame" for approval to raise output to 150,000 barrels a day from 125,000, Bott said in an interview yesterday at Bloomberg's headquarters in New York. The government's priority is to make a decision on the Vedanta bid, he said, adding he didn't know when Cairn would get approval to raise output.
Cairn India still plans to bring total output from Mangala and other fields in the state of Rajasthan to 175,000 barrels a day by the second half of next year, he said. Mangala is the largest onshore oil find in India in more than 20 years, according to Cairn India's website.
"This is the pain companies sometimes have to bear when such a big deal is awaiting approvals," said D.K. Aggarwal, who manages about $100 million as chairman of SMC Wealth Management Services Ltd. in New Delhi. "Not raising production may be significant from a quarterly earnings point of view, but in the long term, output will go up if there is oil in the ground."
Cairn India shares rose 0.1 percent to 324.75 rupees at 9:41 a.m. in Mumbai trading, after falling as much as 1 percent. The stock has gained 15 percent this year, tracking the benchmark Sensitive Index.
India is the world's fourthlargest consumer of oil and imported about 70 percent of its crude last year, according to the U.S. Energy Department. Cairn India was spun off from Cairn Energy Plc in 2007 and is based in Gurgaon, about 30 kilometers (19 miles) south of New Delhi.
Under the company's production-sharing contract, the government can limit the output rate from the field to ensure the resource isn't drawn down too quickly, Bott said.
"Our reserves are holding up, a lot of good news is coming out of the reservoirs," Bott said. "It's a safe and prudent thing to do to be able to extract the oil at a little bit quicker rate."
The Rajasthan area has the potential to produce as much as 250,000 barrels of oil a day, Bott said.
Vedanta, a London-based mining company, agreed in August to pay as much as $9.6 billion for Cairn Energy's majority stake in the Indian affiliate. India's government will decide by February on Vedanta's bid, Oil Secretary S. Sundareshan told reporters in New Delhi on Nov. 29.
With output at 125,000 barrels a day, the Rajasthan fields account for about 85 percent of Cairn India's production, all of which is sold into the domestic market since India is a net importer of energy, Bott said. Customers include Indian Oil Corp. and Reliance Industries Ltd.
The company intends to drill the first of three exploratory wells for a deepwater lease off Sri Lanka next year, Bott said.
Cairn India has hired a Japanese rig and expects to drill three wells at a cost of $50 million each in the offshore program, its first outside India, Bott said.
Moreover, Consumer durables firm Panasonic India said it will invest Rs 95 crore on setting up its first facility for making equipment used in arc welding.
The company said the factory, which will start production by 2012, will come under its newly formed division called Panasonic Welding Systems India, which will supply arc welding equipment for the Indian market. Arc welding is a process of joining materials likes metals by melting it through gas flame, laser, electron beam, friction or ultrasound. -Bloomberg