Jan. 19 (Bloomberg) -- Cairn India Ltd., the energy explorer acquired by London-based Vedanta Resources Plc in December, won approval to raise crude oil output from Rajasthan, a government official with direct knowledge of the matter said.
The operator of India’s biggest onshore oil deposit can increase production by 25,000 barrels a day, the official said in New Delhi yesterday on condition of anonymity. Output at the block in the western state of Rajasthan will rise 20 percent after remaining at 125,000 barrels a day since August 2010.
“That the approval has come after all this time is great for sentiment on the stock,” said Niraj Mansingka, a Mumbai-based analyst at Edelweiss Securities Ltd., who has a “hold” recommendation on Cairn India. “The higher production has largely been factored into earnings estimates.”
Vedanta plans to double capacity at the Cairn India assets, while India’s government seeks to raise output of oil and gas from its biggest fields as import costs rise and demand increases in the world’s second-fastest growing major economy. The oil ministry allowed Reliance Industries Ltd. and partner BP Plc to spend $1.5 billion to develop a new gas field in the nation’s largest deposit this month.
Cairn India climbed as much as 2.4 percent to 352 rupees and traded at 348.65 rupees as of 9:58 a.m. in Mumbai, heading for its highest close since May 4. The benchmark Sensitive Index gained 0.9 percent. The shares have gained 11 percent this year after dropping 5.6 percent in 2011.
The Mangala field in Rajasthan can increase production to 150,000 barrels a day after approvals, Manu Kapoor, a spokesman for Gurgaon, India-based Cairn India, said in an e-mail.
The Rajasthan block is operated by Cairn India with a 70 percent stake, while state-run Oil & Natural Gas Corp. owns the remainder. Vedanta won approval for the acquisition from the Indian government on June 30 on condition that it pays a share of royalties from the fields. ONGC has paid all the royalties since output started in August 2009.
The block has three fields that may produce a combined 240,000 barrels a day, which is about 30 percent of India’s current crude output, according to Cairn India’s annual report for the year ended March 31. Production from the Rajasthan block may rise to 175,000 barrels a day by March 31, the company said on Oct. 21.
Vedanta and its unit Sesa Goa Ltd. completed the acquisition of a 59 percent stake in Cairn India from shareholders, including Cairn Energy Plc, for $8.67 billion in December, 16 months after the deal was announced in August 2010.
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