Cairn In­dia’s plan to in­crease oil out­put de­layed by Vedanta re­view

The Pak Banker - - Company& -

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

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