London: Oil explorer Cairn Energy said on Tuesday it remained on track to produce the first oil from its Rajasthan development in India in the second half of 2009 and forecast growth.
Cairn said planned production capacity in Rajasthan had risen in the last 12 months and it would use revenues from it to fund further development work in the area and pay off debt.
The group said planning for an exploratory drilling campaign in its other main area of focus, Greenland, was under way.
“The next two years promise to be an exciting time,” Cairn said in its full-year results statement. “With a marked increase in group production and cash flow, we will continue to evaluate the strategic options for further creation of shareholder value.”
In a conference call, Cairn’s chief executive Bill Gammell said the company was focusing on developing the company’s existing drilling activities, rather than making acquisitions.
“We obviously see the opportunity to add further value in Greenland and to develop additional reserves in Rajasthan,” he said. “We’re just saying we look at all times to maximise shareholder value.”
The group had reduced capital spending and delayed some development plans in Rajasthan in view of falls in the oil price, but would be well placed even if the oil price was $40 a barrel, Gammell said.
“I would say we’re in good shape,” he said.
Annual net profit was $367 million, including a $356 million exceptional gain on a 4% placement of shares in Cairn India Limited (CIL), against a restated figure of $1.55 billion in 2007 which included a $1.5 billion one-off gain from its initial public offering of CIL.
The company expected production on its Mangala plateau in Rajasthan to reach about 175,000 barrels of oil per day (BOPD) in 2011, Gammell said.
The company was building production capacity for more than 200,000 bopd, although it had not set a date for achieving that.
“I think the signal we’re giving is we have a large basin (in Rajasthan) and once you have the infrastructure in place, you would expect to make other discoveries,” he said.
At 0816 GMT, shares in Cairn had risen 1.55% to 2095 pence.
Broker Numis Securities said the results broadly met expectations, although it voiced concern that Cairn’s plans to increase output in Rajasthan could face setbacks.
“We continue to believe company production ramp-up forecasts are overly aggressive,” it said in a research note.
The discovery of oil in Rajasthan in 2004 transformed Edinburgh-based Cairn Energy, lifting it from obscurity into the FTSE 100 index of the UK’s largest companies.
Cairn comprises two separate business arms, including Cairn India — which has interests in India and Sri Lanka, is listed on the Bombay Stock Exchange (BSE) and is majority owned by Cairn — and Capricorn Energy, an exploration-focused unlisted subsidiary with assets in Bangladesh, Nepal, northern India, Greenland, Tunisia, the UK and elsewhere.