BILL Gammell, chief executive of Cairn Energy, believes that his Edinburgh-based oil business is poised for substantial organic growth in the Indian subcontinent following last week’s huge oil find in the north-eastern Indian state of Rajasthan.
Cairn plans to drill at least two more wells similar to the NB-1 exploration well in the same vicinity and some 30 more within 12 months.
The company is racing against the clock to exploit the full worth of its exposure to India. In May 2005, parts of its acreage which do not yield commercial prospects will revert to the Indian government.
Al Stanton, analyst at Deutsche Bank, said: “They have to drill as much as they can, learn as much as they can about the geological model and prioritise their drilling programme.”
Bill Gammell is not allowing the find – one of the most significant in India’s history and estimated to be worth between £100 million and £300m to Cairn – to go to his head.
“It’s definitely transformational,” said Bill Gammell. “We will test this well over the next week or two, we will then drill another well in the next fault block. If that was to come good, then we are certainly in a different league. The key thing is to get the acreage early. This could have the potential of yielding 300m to 500m barrels.”
Industry insiders have been cynical about Cairn’s subcontinental focus, particularly after its setback in Bangledesh, so last week’s find came as vindication for Bill Gammell, 51, a former Scotland rugby winger and a friend of US president George W Bush.
“The game has changed for us. Instead of a 10% chance of finding it, there is more degree of likelihood of finding something more because we’ve got the acreage. We’ve built a company with a very strong underbelly, but the option for strong organic growth.”
Bill Gammell: Lack of debt enables Cairn to take big punts
Bill Gammell believes Cairn has been able to take big punts on exploration in Bangladesh, India and Nepal because it keeps its indebtedness down. “One rule here is that we don’t like to have more than 25% debt at any one time. In order to run a strategy of being bold on exploration, you have to have a strong balance sheet.
“That has been a cornerstone to our success and why now we’re relatively comfortable. The company has no debt and very solid cashflow and the City expects the results due out in March to be very strong.”
Cairn’s reputation for conservativeness alerted some investors to the significance of last week’s announcement. Mike Felton, fund manager at Isis Asset Management, which has an 8% stake in Cairn, believes the find could be worth between 50p to 150p per share. He said: “We are guided by Bill Gammell’s comments. We regard the company as pretty conservative – and he is quite excited.”
Cairn’s finance director Kevin Hart said: “Rajasthan is the size of 25 North Sea blocks and the area we’re applying for in Nepal is twice the size of Belgium. These are huge areas of acreage and people forget the time it takes you to evaluate it.”
Bill Gammell concluded: “We’re not in a totally scientific game. There’s an art, there’s gut feeling, there’s just a belief, and at Cairn we talk about taking brave pills and being bold all the time.
“To me, attitude is everything: just go forward until apprehended. The way to make money in oil and gas is through the drill bit, through exploration. In which other business can you invest £1m, as we have done on this well, and turn that into £300m?”
Cairn, which last year sold its interests in the Dutch sector of the North Sea, is likely to dispose of its remaining interests in the UK sector.
This article was published in the Sunday Herald on 25 January 2004