Cairn India Profit Falls 70% as Crude Slumps to 6-Year Low

  • Co. sells oil at average of $43.7 a barrel vs $92.1 year ago
  • Cairn quarterly sales fall 44 Percent to 22.4 billion rupees

Cairn India Ltd., a crude oil producer owned by billionaire Anil Agarwal, posted a 70 percent decline in second-quarter profit as oil prices slumped to their lowest level in six years in the period.

Group net income fell to 6.73 billion rupees ($103 million) in the three months ended Sept. 30, from 22.8 billion rupees a year earlier, the company said Wednesday in a stock exchange filing. That compares with an average estimate of 6 billion rupees from 13 analysts compiled by Bloomberg. Sales fell 44 percent to 22.4 billion rupees.

Cairn India, which operates about 27 percent of the country’s domestic crude production, slashed spending this year and relinquished exploration rights in Sri Lanka as oil averaged 50 percent less in the quarter compared with year ago. Drillers globally have reduced investments in exploration and production by a record 20 percent this year, according to the International Energy Agency and companies are divesting assets, cutting staff incentives and renegotiating contracts to lower costs.

“Crude prices have fallen in the last quarter and that will be directly reflected in the form of falling profits and lower operating margins at Cairn India,” Piyush Jain, an analyst in Mumbai for Morningstar Investment Services Inc., said before of the earnings. “Considering that crude supplies may increase, the environment for pure producers like Cairn will remain challenging.”

Selling Price

The company sold oil at an average price of $43.7 a barrel in the second quarter, compared with $92.1 a year earlier. The crude decline prompted the oil producer to cut its capital expenditure plans for the year ending March 31 by more than half to $500 million. Brent crude, the benchmark for half the world’s oil, tumbled to a six-year low in August.

The company based in Gurgaon, near New Delhi, had 179.4 billion rupees of cash and cash equivalents as of Sept. 30. Total expenses at Cairn India rose 8 percent to 21.96 billion rupees. The company produced 205,361 barrels of oil equivalent a day during the quarter. Production from its flagship Rajasthan block was 168,126 barrels a day, according to the statement.

Cairn India shares rose 0.5 percent to 154.25 rupees in Mumbai trading on Wednesday, compared with a 0.1 percent decline in the benchmark S&P BSE Sensex Index. The stock has lost 36 percent this year. The earnings were announced after the close of markets.

To boost revenue, the company is targeting an 18 percent increase in output from its biggest wells in the northern state of Rajasthan from January, according to company and government officials.

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