New Delhi: Cairn India Ltd, a unit of Cairn Energy Plc., said it made two discoveries in its largest oil field and secured government permission to extend exploration work in that area, raising the chances of boosting output.
The drilling extension for its fields in Rajasthan is for six months, the New Delhi-based company said in a statement to the Bombay Stock Exchange. UK-based parent Cairn Energy’s shares rose as much as 2.2% in London.
Getting more time will help the company “explore the full potential” in the region, the statement said. The company plans to spend $1.5 billion (Rs6,150 crore) in developing the area which may have one billion barrels of oil and may boost India’s output by about 20% once production starts in 2009.
“The two discoveries confirm our belief that the Rajasthan basin is world class, and will continue to add incremental value,” chief executive Rahul Dhir said in the statement.
Cairn in December sold $1.93 billion worth of shares to finance a portion of the cost of developing the Rajasthan fields. Investors included Malaysia’s state-owned Petroliam Nasional Bhd., which bought 10% of the company’s stock.
Oil output from Cairn’s Rajasthan area may reach 1,50,000 barrels a day by 2009, a peak level that may be sustained for as long as 10 years, Michael Watts, Cairn Energy’s director for exploration, said on 8 November. That compares to India’s current production of about 6,80,000 barrels a day. Cairn made an oil and gas discovery in Kameshwari well-2 and a gas discovery in Kameshwari well-3, the company said.
Cairn India’s shares closed at Rs130.55, rising 1.6%, on BSE. Cairn India, whose stock has fallen 18% from its offer price, is waiting for the government’s nod to build an $800 million pipeline from the field to a port that must come by June to avoid missing production target, Dhir said on 4 May.
Clearance may have been held up because increased spending will defer delivery of the state’s share of output, R.S. Sharma, chairman of state-run Oil and Natural Gas Corp. said on 4 May. The dispute about who should bear in the cost of the 500km pipeline underscores confusion for investors as the government frees the centrally controlled economy. Under the rules when Cairn’s drilling started in 2002, government-run companies took care of transportation to deliver the oil for processing.
“Cairn came to India at a time when policies relating to exploration for private companies were still getting formulated,” said Jaspreet Singh, associate vice-president at Mumbai-based Prabhudas Lilladher Securities, who has a “subscribe” rating on the stock. “An approval is needed quickly. Otherwise, they may face a delay in production.”