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Cairn India, which extracts crude from the nation’s biggest deposit on land, rose the most in a week in Mumbai after saying it found oil in a new well.
The shares climbed as much as 3.7 per cent to Rs 296, poised for the biggest gain since April 1. The stock closed at Rs 290 on the Bombay Stock Exchange, up 1.6% on yesterday’s close. It has fallen 7.2 per cent this year, compared with a 4.6 per cent drop in the Nifty Index.
Cairn India, controlled by billionaire Anil Agarwal’s Vedanta Resources, discovered oil after a gap of four years, when it resumed drilling in a new deposit in its block in Rajasthan.
This was following policy clarity on exploration activity in development blocks.
This is the 26th discovery at the RJ-ON-90/1 block. The management committee had, on February 14, approved the exploration work programme at the block. After this, Cairn India started the drilling of its first exploration well, Raageshwari-South-1, on February 25.
Technical evaluations indicate 10 metres of gross oil column within Dharvi Dungar Formation. “Oil has been discovered and tested for the first time in the Dharvi Dungar sands in Raageshwari-Tukaram area, where previous discoveries were in the shallower Thumbli sands,” the company said. The volumes of oil in place and the potential resource base associated with this discovery are under evaluation.
Elango P, board member, Cairn India said, “We are delighted with the discovery. This reaffirms our belief that an aggressive exploration drilling programme will help harness the full potential of the Barmer Basin.”
The company is accelerating plans to start 30 wells in the year started April 1 and a similar number in the following 12 months as it seeks to raise production in the area by 71 per cent to 300,000 barrels a day.
“They have to drill more wells to access the potential of the discovery and see if it can significantly add to output,” said Gagan Dixit, a Mumbai-based analyst with Quant Broking Pvt., who has a buy rating on the stock. “Investors will have to wait for more drilling results for the shares to really take off.
A slower-than-expected production ramp-up at the Rajasthan block has impeded Cairn India’s shares this year. The company discovered new oil in the Dharvi Dungar sands in Rajasthan’s Barmer district and is evaluating the size of the reserves, according to a stock exchange filing today.
Cairn India started its first commercial sales of natural gas from the area and activated a new oilfield to revive lower-than-expected output on March 23.
The new field, called Aishwariya, has capacity to produce 10,000 barrels a day.
Cairn India’s profit rose 48 percent to 33.4 billion rupees ($613 million), or 16.5 rupees a share, in the third quarter ended Dec. 31 after it raised output from Barmer.
The government in January approved Cairn India’s plan to raise production from the Barmer block to 300,000 barrels a day, equivalent to about 40 percent of India’s current output. To reach that target, the company will need to find more oil in the area, Chief Executive Officer P. Elango said in February. The block has proved reserves of 1 billion barrels.
Vedanta Resources and unit Sesa Goa Ltd. completed buying a 59 per cent stake in Cairn India from Cairn Energy Plc and other shareholders in December 2011. India’s cabinet approved the takeover on the condition the cost of developing the Rajasthan field would include royalty, which could be recovered from sales.
Oil & Natural Gas Corp., Cairn India’s partner with a 30 per cent stake in the Rajasthan block, has paid the entire royalty since production started in August 2009.
