Shareholders of Cairn India Ltd cheered the company’s latest oil discovery on Tuesday. This comes on the back of clarity from the government that oil companies can conduct exploration activity in development blocks.
Cairn India’s shares rose by 1.57% in a weak market on Tuesday.
Cairn India’s press statement mentions that “technical evaluations indicate about 10 metres of gross oil column within that particular formation”. According to an analyst, unless the size of the reservoir is known, it’s difficult to ascertain the exact impact on the company at the moment. In fact, the company has maintained that the oil volumes in place and the potential resource base associated with this discovery are under evaluation.
Rs.291, the stock trades at 5.4 times its estimated earnings for the current financial year. Investors’ sentiment for the stock has been muted for some time on account of concerns on utilization of cash, delays in production ramp up and whether the company would be able to meet its production forecast for this year. The company plans to exit FY14 with a production of 200-215 kilo barrels per day. The Street believes that Cairn India is likely to miss the production forecast this fiscal year on account of an earlier-than-expected natural decline at its Mangala fields.
However, any exploration upside would be an important trigger in the days to come. It goes without saying that shareholders would do well to keep a close tab on the production ramp up in the near-term.
Meanwhile, the company’s March quarter financial performance is expected to be similar to the December quarter earnings. “Cairn India’s 4QFY13E operational performance to be largely similar to 3QFY13, with net Rajasthan oil sales of 127 kilo barrel of oil equivalent per day (versus 128 kboepd in 3QFY13 and 107 kboepd in 4QFY12),” Motilal Oswal Securities Ltd analysts wrote in their March quarter earnings preview report.