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Cairn India’s Rajasthan resources upgraded

March 25, 2010

Cairn India (CIL) today increased its discovered Rajasthan resource base from 3.7 bn boe to 4.0 bn boe. While the 2.1 bn boe Fatehgarh formation (MBA fields) estimates have not been changed, estimates in 22 other fields (Barmer Hill formation) have been upgraded to 1.9 bn boe (1.71 bn boe earlier).

While the higher resource base is directionally positive, it requires significant work to establish new reserves in an increasingly complex geology. We also expect the near-term management focus to remain on delivering Rajasthan production ramp-up, as opposed to increased exploration. Additionally, difficulty in off-takers’ ability to utilise waxy crude may pose difficulty to early ramp-up to 240Mbbl/d. Separately, a key near-term driver for CIL is further rise in the oil price.

One the back of this discovery, Cairn now has higher visibility on key milestones of the Rajasthan development project along with 37% increase in peak production to 240 Kb/d, higher in-place exploration potential of 2.5 bn boe in Rajasthan vs. 125 mn boe earlier, and finalization of oil sales contracts of 143 Kb/d that takes care of the entire CY10E ramp-up.

Here are various brokerages EPS Estimates and price target for the stock,
Nomura – Rs 6 and Rs 20 for FY 10 and FY11 with a target of Rs 350
Enam – Rs 6 and Rs 20 for FY 10 and FY11 with a target of Rs 290
Edelweiss – the company will be sector out performer
HSBC – Rs 6 and Rs 24 for FY 10 and FY11 with a target of Rs 325
Glodman Sachs – Rs 5 and Rs 25 for FY 10 and FY11 with a target of Rs 350

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