Bloomberg News

Cairn India Profit Rises 12% After Crude Oil Prices Increase

January 24, 2012

(Updates with comment from analyst in fourth paragraph.)

Jan. 24 (Bloomberg) -- Cairn India Ltd., operator of the nation’s biggest onshore oilfield, posted a 12 percent increase in third-quarter profit, beating estimates, after crude oil prices rose.

Net income, including that of units, climbed to 22.6 billion rupees ($452 million), or 11.85 rupees a share, in the three months ended Dec. 31, compared with 20.1 billion rupees, or 10.53 rupees, a year earlier, the company said in a stock exchange filing. Profit beat the 20.8 billion rupee median estimate of 27 analysts surveyed by Bloomberg. Sales were little changed at 31 billion rupees.

The explorer, which London-based miner Vedanta Resources Plc acquired in December, started output from a new deposit this month and is targeting a 40 percent increase in production from the block in the western state of Rajasthan by March. Brent crude, the benchmark for Cairn India’s selling prices, climbed an average 25 percent in the quarter from a year earlier.

“Crude prices will remain bullish in times to come and that means the company will continue to put up such good shows in coming quarters,” D.K. Aggarwal, chairman of SMC Investments & Advisors Ltd., said by telephone.

Cairn India shares have gained 12 percent this year, after dropping 5.6 percent last year. The stock, which rose 2 percent to 351.70 rupees at close in Mumbai before the earnings announcement, is at the highest level since May 4. The benchmark Sensitive Index gained 1.5 percent.

Selling Price

Cairn India, based in Gurgaon near New Delhi, sells oil at rates linked to Brent crude oil prices, unlike state-owned Oil & Natural Gas Corp., which is required to bear part of the country’s fuel subsidy. Brent crude in London trading averaged $109.02 a barrel in the quarter ended Dec. 31.

Crude from the Rajasthan block was priced at a discount of 8.3 percent to Brent during the quarter and the company sold each barrel for $101.1 compared with $76 a year earlier, Cairn India said in a statement.

Revenue and profit declined by 6.3 billion rupees because royalty from the Rajasthan field was made cost recoverable after the deal with Vedanta, Cairn India said.

Cairn India started producing crude from Bhagyam, the second field in the Rajasthan block, and plans to gradually raise output to a peak of 40,000 barrels a day, according to a Jan. 19 stock exchange filing. The Mangala field, which has been producing about 125,000 barrels a day since August 2010, can increase output to 150,000 barrels a day, according to spokesman Manu Kapoor.

Output Target

Fields in the Rajasthan block may produce a combined 240,000 barrels a day, or about 30 percent of India’s current crude output, according to the company’s annual report for the year ended March 31. The explorer has the potential to take Rajasthan output beyond 240,000 barrels a day, Chief Executive Officer Rahul Dhir told analysts on a conference call.

Cairn’s share of output from three producing assets in India was 98,969 barrels a day, 1.3 percent lower than a year earlier, according to the statement.

The Rajasthan block is operated by Cairn India with a 70 percent stake, while state-run ONGC owns the remainder. Vedanta won approval for the acquisition from the Indian government on June 30 on condition that it pays a share of royalties from the fields. ONGC has paid all the royalties since output started in August 2009.

Aishwariya Field

Cairn and ONGC have so far spent $3.3 billion to develop the Rajasthan block, according to the statement. Development has started at a third field, Aishwariya, and all key contracts have been awarded, Cairn said.

Vedanta, a metals and mining company with no previous experience in oil and gas production, and its unit Sesa Goa Ltd. completed the acquisition of a 59 percent stake in Cairn India from shareholders, including Cairn Energy Plc, for $8.67 billion in December, 16 months after the deal was announced in August 2010.

--Editors: John Chacko, Abhay Singh

To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net


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