Cairn India - Rajasthan development on track

Cairn India reported 2Q net profit of Rs1.4bn (US$33.3m). EBITDA increased to Rs2.7bn, up 44% yoy, primarily on the back of higher-than-expected production and rising crude oil prices. Cairn is the only pure play on crude oil prices listed in India. However, we believe current reported results are not meaningful in the context of value that we expect Cairn India to generate once its Rajasthan block starts producing. Management maintained that Rajasthan development is on track for first commercial production in 2HCY09. It also assured that it doesn't see any significant cost increases due to rising commodity prices, as most of its orders have already been placed.

2QCY08 Performance
Cairn reported EBITDA of Rs2.7bn on the back of higher-than-expected production from Ravva and CB/OS-2 Block and rising crude oil prices. The decline in production has been arrested with the start of production from new wells added in the last quarter.

This quarter saw exploration activities in other blocks of Cairn India. Cairn India intends to spend US$100m on exploration activities in the current year. It undertook siesmic programmes in onshore KG block (KG-ONN-2003/1) and Palar (PR-OSN-2004/1) during the second quarter. It completed its drilling for the first of its three well-drilling programmes in CB-ONN-2002/1, which is currently under testing. Consequently, the exploration cost charged to P&L this quarter was Rs427m compared to Rs175m in the previous quarter.

Cairn relinquished GV-ONN-2002/1 block (15% interest) after completing the exploration phase, which lasted seven years. ONGC was the operator of the block. It also added a shallow-water block in Sri Lanka in its acreage and bid for four blocks during India’s NELP VII round; final bid winners are yet to be officially notified.