Saturday, March 14, 2009


● TP revised to Rs195 — We are reducing our TP to Rs195 from Rs230 earlier on the back of our lower NAV to factor in the change in our crude price forecasts. Also, our NAV is now more in-line with that based on the futures curve. While the near-term outlook on oil has undoubtedly weighed on sentiment, it is being offset by the improving prospects for exploration upside in the Barmer basin (recent discovery, new development area) as well as on par execution. Reiterate Buy (1M).

● Oil forecasts revised — We are adjusting our estimates for Cairn India on the back of a revision in our global oil (Brent) forecasts to US$48/bbl (US$65) for 2009E, US$55 (US$75) for 2010E, and US$60 (US$80/bbl) for 2011E. Our long-term crude assumption (2012E onwards) is now at US$65 (US$85).

● Recent site visit addressed some concerns — Cairn’s recent site visit addressed a few concerns on execution and marketing, which along with weak crude, have dominated sentiment. Management was confident of delivering first oil by Q309 (through trucking) and by pipeline in Q409, reducing risks of delay. Resolution on pricing, cess, and multiple government nominees will have to wait.

● Surplus capacity could indicate upside — Surplus capacity being created (for 205kbpd of production) provides comfort and exhibits management confidence on reserve potential in terms of exploration (3 discoveries recently) and higher recovery (both for MBA and LPD resources). We factor in higher plateau – 185kbpd vs. 175kbpd – but still lower than nameplate capacity.

To see full report: CAIRN INDIA