Cairn India Looks Like a Good Buy

| About: Cairn Energy (CRNCY)

Cairn (OTCPK:CRNCY) is an oil and gas exploration and production company based in Edinburgh. Cairn has been listed on the London Stock Exchange since 1988. Its current focus is on India, where it is developing significant production in Rajasthan, and Greenland where it has established a material exploration position.

Cairn holds a 65% interest in Cairn India – which is listed on the Bombay Stock Exchange and the National Stock Exchange of India. Cairn India has interests in 14 blocks in India and Sri Lanka. Cairn India holds a 70 percent stake in RJ-ON-90/1 block in western India and state-run explorer Oil & Natural Gas Corp holds the balance.

On the verge of starting oil production:-

CAIRN is on the verge of starting oil production in the western state of Rajasthan. The company has also received approval from the government to sell crude to MRPL, IOC and HPCL. Bill Gammell, non-executive chairman of Cairn India, said in a speech to shareholders during the company's annual general meeting. "The commercial terms and pricing negotiations for the initial offtake of the Rajasthan crude have been concluded with IOC and MRPL," and the company is in the advanced stage of concluding the crude oil sales agreements, Gammell said.

The Mangala Processing Terminal is ready to start production with a capacity of 30,000 barrels a day of oil, which will be increased by a further 100,000 barrels per day in the first half of 2010, he said. Cairn India will transport oil in trucks to the Gujarat coast for shipping to Indian Oil and MRPL until a crude oil pipeline is completed by December 2009, he said.

He said:

The Rajasthan project is one of the biggest onshore oil and gas developments undertaken in India in recent years and the production from Rajasthan at the current envisaged rates has the potential to create significant value for all of our stakeholders.

Production from Rajasthan could eventually exceed 175,000 barrels a day, he said. However, extreme weather in Gujarat, and monsoon rains and heat in Rajasthan along with other factors could "pose schedule risks" to the company's target of reaching the second phase of oil production and constructing the pipeline, Gammell said. Cairn India is also expected to soon start production from its Barmer field in Rajasthan.

Low Cost of production at around $5 per barrel:-

Cairn expects to hold costs at about $5 per barrel for crude oil produced from its Rajasthan fields, a top official said, helping it reap strong revenues this fiscal year. "We intend to keep our costs low and see production cost at about $3.5 per barrel. Transportation cost will be another $1.5 (per barrel)," Chief Executive Officer Rahul Dhir told reporters at the annual meeting of shareholders. The company, a unit of UK explorer Cairn Energy, has secured deals to sell crude to state-owned refiners Mangalore Refinery and Petrochemicals Ltd and Indian Oil Corp at a 10-15 percent discount to Brent LCOc1.

Investing $4Bn in Rajasthan:-

Cairn India and ONGC will jointly invest $4 billion (Rs 20,000 crore) to scale up the production capacity of their oil fields at Barmer in Rajasthan by 25,000 barrels of oil per day (bopd) to two lakh bopd. They had earlier revised their production target from 1.50 lakh bopd to 1.75 lakh bopd. While addressing the shareholders of Cairn India in Mumbai, chairman Sir Bill Gammell said: “By 2011, Cairn and its joint venture partner will invest up to $4 billion on the development of Mangla, Bhagyam and Aishwarya fileds.” The investment will be shared between Cairn India and ONGC in the ratio of 70:30 in line with their equity holding in the oil fields

Technical Outlook:-

CAIRN (Rs 242) is trading in a narrow range between 252 and 230 but sustaining above all moving averages. CAIRN is in an uptrend and can target Rs 274-278 in current move. Short-term players can keep a stop loss below Rs 230. Long term investors can accumulate this stock at current levels and in dips for a target of Rs 340 in next 1-2 years.

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Cairn India: On Verge Of Starting Rajasthan Crude Ops
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Cairn, ONGC to invest $4 b in Rajasthan

Disclosure: I Hold CAIRN in my personal portfolio