Subscribe to Cairn IPO at lower price band: Angel Broking

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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 Angel Broking report on Cairn India IPO:

Company overview

Cairn India, CIL is a newly incorporated Indian entity of Cairn Energy Plc, a UK company, which specializes into oil and gas exploration and production, E & P activity. Cairn Energy through its subsidiaries is into exploration and development of oil blocks in India from past 12 years. The gross proved and probable (2P) reserves in which CIL has interest are estimated to be 754 mmboe (million barrels of oil equivalent) and its net working interest in these reserves is estimated to be 472 mmboe.

The gross contingent reserves attributed to these fields are estimated at 413 mmboe. Most of the company's reserves are contained in the Rajasthan block. CIL is likely to have share of 20% of India's oil production by 2010 with the production from Rajasthan block's northern fields at gross plateau production rate of 150,000 barrels of oil per day (bopd).

Investment Positives

Private E & P player with proven expertise

CIL is involved in exploration and production activities in India for more than 12 years. Since 1994 it has made 30 discoveries including 3 of the 7 landmark discoveries. The Mangala field discovery in Rajasthan is by far the largest onshore crude oil discovery since 1985. Since then it has made additional 18 discoveries in Rajasthan block. It is also participating actively in the NELP licensing rounds for newer opportunities.

CIL has proved itself not only in discovering but developing the hydrocarbon resources in India. As an operator in Lakshmi field in Cambay Basin, CIL commenced natural gas production in less than 30 months, following discovery. The production from Ravva field was enhanced from the initial 3,000 bopd to current plateau of 50,000 bopd, which accounts for about 7% of the total domestic production. The Lakshmi and Gauri fields currently produce about 25,000 bopd. CIL boasts with not only exploration expertise but also its execution capabilities, which it has proved over the past years.

Rajasthan block - highest resource base

CIL has 70% interest in Rajasthan block along with ONGC, which holds the rest 30%. Mangala field, which is the largest discovery has estimated 2P reserves of 428 mmboe where Cairn's net working interest is 300 mmboe. The Bhagyam field is estimated to have gross 2Preserves of 140
mmboe.

Till now the company has discovered 19 different fields. The aggregate gross 2P hydrocarbons initially in place attributable to all the existing Rajasthan Block are approximately 3.6 billion boe. Currently Mangala, Bhagyam, Shakti, Aishwariya, Saraswati, Raageshwari fields are under active development planning.

CIL expects to produce oil from the development of Rajasthan Block 2009 onwards. The gross plateau production of 150, 000 bopd from Mangala is likely to start in mid 2009 (CIL share about 105,000 bopd). The production from Bhagyam and Aishwariya fields is likely to start 6 months and 12 months later respectively after commencement of Mangala production. The combined net plateau production of 150, 000 bopd is likely to start from 2010. This plateau is expected to sustain for a period of about 7 - 10 years after which it'll start declining.

Lower operating costs

The average operating costs for the current operating fields (Cambay, Ravva) during the first half was less than USD 1/ boe. CIL's technical expertise in E & P has helped it in curbing the operating expenditure while sustaining the production volumes. The management expects the production costs for the Rajasthan block to remain at USD 6/ boe during its plateau production.

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Investment Positives

Concerns

Valuations