The Hindu Business Line : `A natural progression to feed the energy hungry in India'

Cairn Energy has announced plans for a partial IPO of its Indian business. In this interview, sourced from Cairn's Web site, Sir Bill Gammell, Chief Executive, dwells on the potential of the company's reserves in Rajasthan and explains the logic for the IPO in India. Excerpts:

Aside from the results, the big news this morning is the partial IPO on the Bombay Stock Exchange. Why are you doing this?

I think now is the right time. We've had a substantial increase in our reserve base in Rajasthan. We see that growing and I see the opportunity to create two world-class businesses, one based in India and one in the UK. I think it's natural to provide more autonomy for the Indian business, to have the management team in India drive that business forward.

Is this really what you want in India though? Don't you really want ONGC to come in with a full cash offer? They are a natural buyer for Cairn, after all?

No, I think the important thing is that we have a very good business in India, which I want to grow. I think we've also got a residual business in terms of the other assets that we would have which I would like to see grow in the UK market. So I think it's a natural progression of the business. The businesses need to grow.

How would you describe your discussions with ONGC at the moment?

ONGC are our partners. We constantly have discussions with ONGC but I have no comment to make on any particular discussions.

Or on things that they've said in the press?

No. It's a public company. If there was anything that had to be said that was material, we would have to say it to the market. But they're one of our partners; we talk to lots of people all the time about lots of different thingsI've always believed the most important thing is to have strong flexibility. We have a really exciting, growing resource base in Rajasthan. We have an emerging market in India that is very much energy hungry and we see it as a natural progression to partially float the Indian part of our business in India. This, actually, is going back to our roots. In the early 1990s, we did the same thing with a North American business we had and I think it's very important that you develop a business with the people in the markets in which the assets should be quoted.

Some will ask, though, whether it wouldn't be more efficient to split the business on a single exchange - London, for example?

I don't think that makes any sense at all. I think the important thing is that the business is valued within the Indian market since that's where you get the most value. I also think for the Indian staff, driving the business forward, being quoted in their own market is the right thing to do.

What does today's announcement mean for the company as a whole? Is it just a prelude to selling off the whole business?

A. No, absolutely not. It's completely the opposite. It's a strong strategy to drive the business forward in two areas. For a long time, we have believed that Asia is an emerging market. We got in there early. We built a strong, strategic position and we now want to build on our competitive edge and drive that business forward in India and South Asia. The remaining assets in the group, which would be Nepal and Bangladesh, again, are businesses that we want to drive forward.

Timetable, use of proceeds

Can you go into a little more detail on the partial IPO? What proportion of the Indian business will you list?

It's too early to say but if we do IPO we have to IPO a minimum 25 per cent and a maximum of 80 per cent, so that gives you a band between the areas that we would look at. But it depends on market conditions. It depends on appetite and it depends on value.

And what sort of timetable are you looking at?

I think the timetable is difficult to recognise right at the moment. What we've actually said is, before first production, before first oil. So I think if we're sitting down here in a year's time, we'll have a lot more information.

What's the impact of today's announcement on head office in Edinburgh? Are jobs going to go?

It's early days. I think some jobs will go because naturally we are moving more autonomy into India. Therefore, some of the functions will move to India. But what the degree of job losses will be, it's far too early to say. I hope we'll keep it to the minimum.

Rajasthan upgrades

You're upgrading estimates for the key fields in Rajasthan. What are the new estimates?

We've basically had an upgrade of about 20 per cent of the three northern fields. The exciting thing about Rajasthan, and we said this when we made the discoveries, is that good fields get better and we have made world-class discoveries. I think the exciting thing about the total resource base in Rajasthan is that we still see that it's got a lot of upside still to go. Our total resource base, we believe, is now heading towards 1billion barrels of potentially recoverable reserves, which is simply world class. But what we try desperately to do is under-promise and over-deliver and I hope that we will consistently continue to upgrade our resource base. I think the success we've had in Rajasthan, the success that ONGC, Reliance and GSPC have had in India, has made people start to recognise that India is a world-class resource base for the exploration for hydrocarbons. It's been missed. The exploration director here, Mike Watts, said to me 10 years ago that there had been 12 wells drilled by the majors within India, but they'd drilled 8,000 wells in South-East Asia. So, really, we cottoned on to that fact that, basically, the majors had missed it early on. Is the appraisal process now complete here?

No. The appraisal process is ongoing. In the major fields, Mangala and Aishwariya and now Bhagyam, we're still waiting for the Field Development Plan for Mangala and Aishwariya. Once we've got that Field Development Plan, then we'll sanction the project and move forward and we're looking to bring first production now in 2008.

And when can we expect the field development plans?

We're just waiting for final approval. We've had the Operating Committee approval. We're now waiting for the management committee approval.

Courtesy: Cairn Energy PLC (www.cairn-energy.plc.uk)

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