Saturday, February 4, 2012

>CAIRN: Flat Mangala production; Aishwariya production is likely to commence

Cairn reported better than expected numbers owing to lower interest expenses, higher other income on higher cash balances and over Rs3bn in forex gains. Operational performance was in line with Mangala crude production at 125,122bpd during Q3.

 Rajasthan crude attracts only 8.3% discount to Brent: Due to narrowing light-heavy differentials, Rajasthan crude attracted only 8.3% discount to Brent against about 10-15% which aided revenues. Cairn’s revenues jumped 16.8% QoQ but remained flat YoY at Rs31.0bn.

■ Mangala production flat: During Q3, Mangala crude production averaged 125,122bpd against 125,251bpd in Q2. The company did not receive government approvals for Bhagyam during the quarter which led to flat QoQ production. Crude production from Ravva declined QoQ to 26,254bpd from 26,965bpd in Q2; however, gas production jumped to 62mmscfd from
55mmscfd in Q2. Cambay crude production also declined QoQ to 4,795bpd from 5,390bpd in Q2 and gas production remained flat at 19mmscfd.

 Opex, DDA in line: Opex during the quarter remained low at US$2.5/bbl (including transportation), yet the company maintained its long term guidance of US$5.0/bbl. DDA for the quarter was at US$8.0/bbl in line with the company’s guidance. Interest cost declined 80.5% QoQ to Rs240mn on the back of retiring debt during Q2. On the other hand, other income jumped 81.3% QoQ to Rs1,124mn on account of higher cash balance. The company also earned forex income of Rs3bn thus providing fillip to the bottom-line. Cairn thus reported 196.8% QoQ and 12.5% YoY jump in PAT at Rs22.6bn.

 Bhagyam production starts, awaiting approval from government to increase Mangala production: Cairn commenced crude production from its Bhagyam field on January 19, 2012 which will be ramped up to its plateau of 40,000bpd by the end of February, 2012. This would take Rajasthan crude production to 165,000bpd while the company still maintains its exit rate for FY12E at 175,000bpd. The management guided crude production of 175,000bpd+5-10% for FY13E. As per earlier guidance, Aishwariya production is likely to commence in H2CY12. Cairn is awaiting approvals from the government to increase production from MBA fields to 240,000bpd. Phase-I exploration program for Sri Lanka block is over and phase-II has started (2-year program). Exploratory drilling in the Sri Lankan block is expected in 2013 based on rig availability. The company has spent over US$157mn in Phase-I
program in Sri Lanka. The stock has jumped by over 11% during the last one month. Hence, we downgrade the stock from ‘Buy’ to ‘Hold’ maintaining our price target at Rs376.