Cairn’s 4QCY08 result release suggests a 3QCY09 startup at the Mangala field, with 30,000 bpd.
In 4Q, it planned to add 50,000 bpd and take it to 125,000 bpd in 1HCY10. Bhagyam and Aishwariya are expected to start from 2011. We conservatively estimate 10,000 and 75,000 bpd from Mangala in CY09 and CY10, respectively.
The company pointed to a possible doubling of peak production from the Aishwariya field, from 10,000 bpd approved now, on greater assessed reserve potential.
We estimate a positive 2-4% to valuations if approval is given. Peak production at Rajasthan could then rise to 185,000 bpd.
Cairn indicated it has optimized capital expenditure on the Rajasthan fields and might revise capital expenditure figures in February’09, which is expected to be lower. It stated that an EOR pilot would start late 2009 or early 2010 (as technical evaluation is pending). This could affect our target price.
Production at Mangala is expected to start in 3QCY09. But the pipeline for crude transportation would be ready only by 4Q.
It plans to truck crude to the coast for further trans-shipment to MRPL. As the cost of truck transport would be high, Cairn’s net realizations in the initial production ramp-up (3QCY09) would be low.
Our target price of Rs175 is based on a DCF-valuation of its 2P, EOR reserves and the upside on its exploration assets; under a long-term Brent assumption of $60/bbl. Downsides to our valuation include crude price, recoverability risks and execution risks.