Subscribe to Cairn India IPO with long term view: Emkay

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Cairn India, a crude oil and natural gas exploration and production company, is open for subscription with a public issue of 32,87,99,675 equity shares of Rs 10 for cash at a premium to be decided through a 100% book-building process. Issue closes on December 15, 2006.

DSP Merrill Lynch and ABN Amro Securities India are acting as global coordinators and book running lead managers to the issue along with book running lead manager JM Morgan Stanley.

The Emkay PCR report on Cairn India IPO:

Cairn India, CIL is a newly incorporated Indian company and has been promoted by Cairn Energy PLC, a crude oil and natural gas exploration and production company trading on the main market of the London Stock Exchange. At the completion of the reorganisation, the company will acquire the 28 subsidiaries of Cairn UK Holdings [including Cairn Energy Australia Pty (CEA), Cairn Energy India Holdings BV (CEIH) and Cairn Energy Hydrocarbons (CEHL)] which hold all of the ownership and operated interests in Cairn Energy PLC's Indian crude oil and natural gas development and production assets and the majority of its Indian crude oil and natural gas exploration assets.

Upon the company's acquisition of the subsidiaries, Cairn aims to be a leading participant in the Indian crude oil and natural gas industry. The company estimates the total gross proved plus probable (''2P'') reserves attributable to the fields in production or under development in which Cairn India has interests to be 754 million barrels of oil equivalent (mmboe) and its net working interest in these 2P reserves to be 472 mmboe. Most of the 2P reserves are estimated to be contained in the Rajasthan Block, which is currently subject to significant appraisal and development activity. In addition to proved plus probable reserves, the company estimates the gross contingent resources attributable to these fields to be 413 mmboe.

Outside of the Rajasthan Block the company estimates the total gross 2P reserves attributable to the fields in production or under development in which CIL has interests to be 122 mmboe and on a net working interest basis the company estimates these reserves to be 30 mmboe. In addition, a further 157 mmboe of gross contingent resource has been identified in fields outside of Rajasthan, with most of this gross contingent resource (143 mmboe) estimated to be contained in the deep water Block KG-DWN-98/2.

Competitive strengths of CIL

World class resource base

CIL's net working interest in 2P crude oil and natural gas reserves is expected to be 472 mmboe. A significant portion of this 2P reserves base is in the Rajasthan Block and provides the opportunity for transformational growth in the near term. In addition, the company has identified significant contingent resources, particularly in the Rajasthan Block, which provide it the opportunity to sustain and grow its production in the medium term.

In addition to the exploration and appraisal potential remaining in Cairn India's production and development fields, Cairn India holds working interests in licences covering a significant portfolio of exploration and appraisal acreage in 10 blocks in eastern, western and northern India. These interests provide the company opportunities to grow our business over the longer term.

Unique position in India

In partnership with the Government of India, GoI and state governments, regulators and key industry participants such as ONGC, Cairn India has been exploring and operating development and production assets in India for over 12 years. India is an attractive country for investment in the oil and gas exploration and production sector with domestic demand for hydrocarbons far exceeding supply in recent years, and expected to continue to do so.

The current fiscal terms under which CIL, as well as other exploration and production companies, operate in India are relatively favourable in comparison with other countries, both in terms of recouping development expenditure and the levels of government take through production sharing and profit taxation. In addition, the GoI continues to show its support for investment in the exploration sector through the opening of new acreage to investors in the current NELP VI round.

CIL's unique position in India and the importance of its development in Rajasthan to the GoI and relevant state governments of India is reflected by its estimation that CIL will operate approximately 20% of India's oil production by 2010, assuming Indian production remains at current levels and production from the Rajasthan Block's Northern Fields fulfils its target gross plateau production rate of approximately 150,000 bopd.

Experienced management

CIL has an executive management team with substantial experience in the Indian oil and gas industry, backed by a highly skilled and experienced Board. As a result, we believe CIL is ideally positioned to pursue value-adding opportunities, whether in respect of new or existing assets. In the Rajasthan Block, the development team is fully constituted and staffed with industry experts possessing a wealth of international experience in large-scale international development projects.

The team is expected to be led through project implementation by our chief operating officer Lawrence Smyth, formerly President of British Petroleum's business in Colombia and of the Sidanco Oil Company in Russia prior to its merger with TNK/BP. The detailed engineering design team for the Mangala field development consists of more than 100 people in Houston, USA comprising personnel employed by Cairn India working alongside personnel from Mustang Engineering Inc.

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