According to British novelist John Anthony Miller, better known by his pseudonym Peter Pook, rugby is a game for the mentally deficient. “That is why it was invented by the British… Who else could invent an oval ball?” Oscar Wilde thought of the game as an occasion to keep 30 bullies far from the centre of the city.
Bill Gammell, who played wing for Scotland’s rugby team during 1977-80 and scored two tries in his first international, talks like a rugby player. He often invokes the “winning attitude”. The great danger, according to him, is limiting your horizons, and so on.
However, as the chief executive of Cairn Energy Plc, Gammell, who turns 58 this December, has single-handedly exploded the rugby player stereotype of one who should not be eulogised for his intelligence. In the process, he has also exploded another myth, that it is difficult to make money in the oil business in South Asia.
Gammell is not new to oil. If you are feeling particularly dramatic, you can say it’s in his blood. His father Jimmy was chairman of the investment group Ivory & Sime and a friend of the Bush family, whose fortunes were built on oil. (Incidentally, former US President George Bush Junior is an old buddy. Tony Blair is a schoolmate; the two were debating partners at the elite Edinburgh school Fettes.) Gammell became familiar with oil rigs during school holidays. In 1980, putting the oval ball behind him, Gammell went on to set up Cairn Energy, naming it after the piles of stones that mark the peaks of Scottish mountains.
Right now, Gammell can be said to be at the peak of his entrepreneurial career. Cairn, which gets nearly 95 per cent of its revenues from its Indian operations, has sold a majority stake in the Indian company, Cairn India, to London Stock Exchange-listed Vedanta Resources Plc. Cairn is expected to raise $8.48 billion from this sale.
The deal marks a culmination of sorts for the big bets Gammell placed in these parts, not all of which came off. Back in the early 1990s, there were doubts over how long the company could continue. He had to convince shareholders to cough up enough money to keep it afloat. He burned his fingers in Bangladesh in 1996 when the country refused to allow its gas to be exported. He had big plans for Nepal, but the Maoist upheavals put paid to them. Wiser from the experiences, Gammell put in a carefully crafted strategy which has grown Cairn’s value from $10 million in 1992 to over $10 billion.
By the time Cairn hit the jackpot in the Mangala field in Rajasthan in 2004, the largest on-land oilfield in the country, Gammell was wiser and ready to control the fallout of any political swings. In 2005, Cairn offered its interest in the Rajasthan and other fields in India to Oil and Natural Gas Corp for close to $5 billion, but the Indian state-owned company did not agree with the valuation. Still, Gammell managed to convince ONGC and the Indian government to pay all of the royalty on the oil even as ONGC held only 30 per cent in the Rajasthan assets.
Gammell then chose to spin off Cairn’s operations in India and list the unit on this country’s stock exchanges. This was designed to make the Indians feel that they had a stake in the company. (Even after the sale to Vedanta, which may bring his stake down to 11 per cent, Gammell insists that he remains connected with this country. “We are not withdrawing from India,” he told Business Standard soon after the deal with Vedanta was announced.)
The listing had other, favourable fallouts. The Initial Public Offer of Cairn India raised $2 billion, the biggest beneficiaries of which were the overseas shareholders of Cairn Energy. About $1.3-1.4 billion out of the proceeds were paid to the UK-listed company’s shareholders, who are in line for another windfall. According to Gammell, “a substantial amount” of the $8.48 coming from Vedanta would be “returned to Cairn (Energy Plc) shareholders”.
With hindsight, one can say Cairn pulled off a coup by buying out Shell’s half share in 2002 in what turned into the Rajasthan oilfield for just $7.25 million. On Cairn’s latest estimate, the field contains 6.5 billion barrels of recoverable reserves.
While betting on India, Cairn has been careful not to put all its eggs in one country, while also displaying an adventurous streak. Its rigs are currently grinding away in Greenland, where costs are high and prospects almost completely unknown. It expects to spend $300 million a year for the next three years there, but it already has $700 million in the bank.
As Neil Collins of Reuters Breakingviews pointed out in this newspaper, Gammell is spending other people’s money. A canny deal with Petronas, Malaysia’s national oil company, paid for the first year’s costs and secured two rigs, allowing drilling to start this summer rather than next. In other words, Cairn could pay back all the cash to shareholders and still comfortably fund its Greenland adventure, perhaps hoping for another Vedanta to come calling.
Bill Gammell, Chief Executive, Cairn Energy PLC
