The end of Cairn Energy?s Indian impasse is in sight. The government in New Delhi appears to have overcome its reluctance to allow the UK oil explorer to sell 40 per cent of Cairn India to Vedanta Resources, the London-listed mining company. Conditional approval was granted last week, though with revised terms that are less favourable for buyer and seller. For Cairn Energy, completion of the deal will allow it to turn its full attention to the very different environment of Greenland.
The formula of Sir Bill Gammell, the rugby-playing Scotsman who founded Cairn Energy in 1980, is to explore, discover, start production, sell, distribute profits, then start all over again.
It worked in the Indian state of Rajasthan, where Cairn?s big discovery in 2004 turned it into an exploration heavyweight. The company?s shares have risen by more than 1,000 per cent since then, compared with 35 per cent for the FTSE 100; shareholders will also receive a chunk of the net $5.4bn Cairn Energy expects if its sale of 40 per cent of the Indian venture to Vedanta is completed.
Cairn Energy will keep 22 per cent of Cairn India, thus retaining exposure to its future growth: current production of 125,000 barrels a day has the potential to reach at least 240,000b/d.
However, keeping investors in the riches to which they have become accustomed will require similar success in Greenland, where seven wells will have been drilled by the end of the summer.
Moreover, it will have to be achieved without Sir Bill?s operational involvement. His last day as chief executive, before becoming non-executive chairman, was June 30 – fittingly, the day that India approved the Vedanta deal.
Cairn Energy?s shares rose 9 per cent last week. In the short term, further gains are probably constrained pending certainty on the India deal. Even without Sir Bill to carry the ball over the line, however, there should be plenty more to come from Cairn Energy.
? The Financial Times Limited 2011