Cairn India Output Boost May Be Delayed a Few Months

Cairn India Ltd.’s plans to boost oil output by 20 percent from its Mangala field may be delayed past the end of the year as approval for the project remains under review by the Indian government, Chief Operating Officer Rick Bott said.

The company previously said it thought it would secure approval and be able to increase output to 150,000 barrels a day from 125,000 by the end of December, Bott said in an interview yesterday at Bloomberg’s headquarters in New York.

“At this point in time, that decision is still in the technical, regulatory approval process,” he said in a phone interview today. “We don’t anticipate that we’re going to get it by the end of the year, but it could come at any time.”

The Indian government also is reviewing Vedanta Resources Plc’s $9.6 billion bid for the company.

“This is the pain companies sometimes have to bear when such a big deal is awaiting approvals,” said D.K. Aggarwal, who manages about $100 million as chairman of SMC Wealth Management Services Ltd. in New Delhi. “Not raising production may be significant from a quarterly earnings point of view, but in the long term, output will go up if there is oil in the ground.”

Cairn India still plans to bring total output from Mangala and other fields in the state of Rajasthan to 175,000 barrels a day by the second half of next year, Bott said yesterday. Mangala is the largest onshore oil find in India in more than 20 years, according to Cairn India’s website.

Fourth-Largest Consumer

Cairn India shares fell 0.4 percent to 323.10 rupees at the close in Mumbai trading. The stock has gained 15 percent this year compared with a 14 percent increase in the benchmark Sensitive Index.

India is the world’s fourth-largest consumer of oil and imported about 70 percent of its crude last year, according to the U.S. Energy Department. Cairn India was spun off from Cairn Energy Plc in 2007 and is based in Gurgaon, about 30 kilometers (19 miles) south of New Delhi.

Under the company’s production-sharing contract, the government can limit the output rate from the field to ensure the resource isn’t drawn down too quickly, Bott said.

“Our reserves are holding up, a lot of good news is coming out of the reservoirs,” Bott said. “It’s a safe and prudent thing to do to be able to extract the oil at a little bit quicker rate.”

The Rajasthan area has the potential to produce 240,000 barrels to 250,000 barrels of oil a day, Bott said.

February Decision

Vedanta, a London-based mining company, agreed in August to pay as much as $9.6 billion for Cairn Energy’s majority stake in the Indian affiliate. India’s government will decide by February on Vedanta’s bid, Oil Secretary S. Sundareshan told reporters in New Delhi on Nov. 29.

Nigerian Bonny Light crude, the basis for Cairn’s selling price, rose 87 cents to $92.95 a barrel at 11:51 a.m. today New York time, according to data compiled by Bloomberg. It has averaged $80.27 a barrel so far this year, up 48 percent over the same period in 2009.

With output at 125,000 barrels a day, the Rajasthan fields account for about 85 percent of Cairn India’s production, all of which is sold into the domestic market since India is a net importer of energy, Bott said. Customers include Indian Oil Corp. and Reliance Industries Ltd.

The company intends to drill the first of three exploratory wells for a deep-water lease off Sri Lanka next year, Bott said.

Cairn India has hired a Japanese rig and expects to drill three wells at a cost of $50 million each in the offshore program, its first outside India, Bott said.

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