VR Logo

Hunting for Oil

Cairn India is now managed by Vedanta Group, which lacks experience in oil exploration...

Cairn India was listed in 2006 with just the Rajasthan fields under its command. The company has undergone a change in its management from Cairn Energy to Anil Agarwal's Vedanta Group, which lacks in oil exploration experience. But it gives Cairn India access to Vedanta's huge financial resources for future acquisition.

Outlook and valuations. Perhaps the biggest overhang on the stock was the lack of clarity about exploration in development fields. With the government go-ahead, Cairn plans to drill 30 wells annually over the next 3 years to unlock the Rajasthan block's full potential at a cost of $300 million. According to the company, exploration costs could be recouped if they hit at least one commercial discovery in the process. If the company does hit upon commercial success in its exploration and output reaches the 300 kbpd mark, then, according to Niraj Mansingka of Edelweiss Securities, the stock could see an exploration upside of Rs 75 per share. The stock currently trades at 5 times its TTM earnings. Buy.