NEW DELHI: Cairn India will complete the first full year of producing oil from its Rajasthan block with a net profit of about Rs 6,600 crore on March 31 and has projected it to jump by 34% next fiscal year, sweetening its planned acquisition by Vedanta Resources for $9.6 billion, investment bankers and analysts said after a confidential briefing by the company.
At 10:40 am, shares of the company were trading 0.34% up at Rs 353.25 on the Bombay Stock Exchange.
The company’s net profit in the next financial year is expected to be about Rs 8,900 crore due to a surge in global crude prices and a 40% increase in output from the Rajasthan block, an analyst with direct knowledge of its finances said requesting anonymity. Cairn’s oil price realisation is expected to jump close to $100 a barrel in the current quarter compared to $74.8 per barrel in the previous quarter of current financial year, the analyst said.
The company has already registered a net profit of Rs 3,877 crore in the first nine months of 2010-11 , registering a 381% jump. Its net profit in the previous fiscal year, during which the Rajasthan block started production, was merely Rs 1,051 crore. Cairn India director-corporate affairs Manu Kapoor declined to comment. “The company’s robust financial performance this year and its potential has kept Vedanta waiting for the deal to conclude,” said the analyst who is tracking the multi-billion-dollar Cairn-Vedanta deal since it was announced on August 16. The deal is expected to get a green signal from the Indian government next week. Anil Agarwal-controlled Vedanta Resources had agreed to buy up to 60% of the Indian unit of Scottish firm Cairn Energy for $9.6 billion and awaiting the government’s approval for over six months.
The delay was mainly due to Cairn’s initial resistance in seeking government’s nod and its dispute with ONGC over a royalty issue in the Rajasthan block. As per a 15-year-old contract, ONGC is obliged to pay royalty on behalf of its partner for oil produced from the Rajasthan block. ONGC cites the same contract for recovering the royalty cost from the field’s revenue before calculating profit. Cairn contests ONGC’s claim as the move would significantly reduce the valuation of the deal.
Cairn India, which is producing oil from India’s biggest onland oil block in Rajasthan since August 29, 2009, is getting 125,000 barrels daily output from the Mangala oilfields in the block. The block is Cairn’s main asset comprising over 90% of the deal valuation. The output from the Mangala fields can be ramped up to 150,000 barrels per day in just 48 hours, a Cairn executive said. “Cairn has required infrastructure ready and waiting for the government’s approval,” the executive, who did not wish to be named, said.
The company is expecting an additional output from the Bhagyam fields in the Rajasthan block in the second half of 2011. The fields are expected to achieve a plateau crude oil production of 40,000 barrels per day by 2011 end, the executive said. Cairn India’s parent company in Londan claimed last week that the Rajasthan block has a potential to produce 240,000 barrels of crude oil daily. But the claim is yet to be ratified by the Indian upstream regulator, the Directorate General of Hydrocarbon. It has so far approved a peak output of 175,000 barrels per day from three oilfields – Mangala, Bhagyam and Aishwariya – at the Rajasthan block, which is about 20% of India’s overall domestic crude oil production.
From economictimes.indiatimes.com
