Cairn India reports in-line 4Q numbers, to focus on exploration, says Nomura

Cairn India’s focus is clearly back on drilling to further tap the Rajasthan resource—450 wells including 100 exploration wells planned over three years; two new rigs to join in the first quarter of calendar year 2013, taking the count to six; while the management’s plan is to contract five more in FY14, according to a Nomura Equity Research report

Cairn India reported PAT (profit after tax) of Rs25.6 billion for the fourth quarter of FY13 which was in line with Nomura’s forecast of Rs25.9 billion, but was 8% below Bloomberg consensus. EBITDA was flat q-o-q, but PAT fell 23% q-o-q due to higher exploration costs (dry well write-off in Sri Lanka, 3D seismic in South Africa) and higher forex gains in 3Q.


The company remains confident on 200-215kbpd FY14F exit guidance. (Mangala to maintain 150kbpd, Bhagyam reaching 40kbpd in 2H, Aishwariya reaching 10kbpd, and balance from Barmer Hill—the Field Development Plan (FDP) approval still awaited).


Cairn India’s focus is clearly back on drilling to further tap the Rajasthan resource (450 wells including 100 exploration wells planned over three years; two new rigs to join in the first quarter of calendar year 2013, taking the count to six; while the management’s plan is to contract five more in FY14). Cairn is targeting net capex of $3 billion over three years ($1 billion each year; 80% in Rajasthan). Even as its capex target looks ambitious (total gross investment of $3.8 billion until date in Rajasthan), Cairn would have plenty of cash left, according to Nomura Equity Research ($3 billion cash in hand, and likely to generate

Around $5.6 billion cash from operations over three years).


Nomura is more conservative on the Rajasthan block production profile and assumes higher capex in line with the new guidance. It assumes further ramp-up to only 230kbpd (earlier 245kbpd; company target 300kbpd) and also assumes sharper declines. The brokerage has FY14/15F EPS to decline by 2%-4% and has conservatively assigned a 17% discount to cash (in line with current dividend distribution tax).


Nomura highlights the following points from Cairn management’s conference call after announcing its 4Q numbers:

Reported PAT of Rs25.6 billion (up 17% y-o-y, down 23% q-o-q) is in line with the brokerage’s estimate of Rs25.9bn, but 8% below Bloomberg consensus.

Sequentially, production declined 1% and EBITDA decline was also 1%.

Key reasons for the 23% decline in PAT q-o-q include: (1) higher exploration cost (dry well write-off of Rs2.7 billion and Rs0.7 billion expensed on 3D seismic in South Africa and

(2) large forex mark-to-market gains booked in 3Q, offset by higher other income in 4Q.

• FY13 EPS increased by 51% y-o-y, driven by a 32% increase in the Rajasthan RJ block production.

The company announced a final dividend of Rs6.5 per share. Including interim dividend

(Rs5/share) the total dividend payout was 21.2%, which is in line with the 20% guidance.

The company recently renegotiated the sales contracts with domestic refiners (for over

200kbpd). Based on improved pricing, Cairn has lowered its guidance on quality discount for the Rajasthan crude from earlier 10%-15% to now 8%-13%. Based on the brokerage’s numbers, Nomura assumes a discount of 13%, which is at the upper bound of indicated range.


According to Nomura, Cairn management again reiterated Rajasthan block production guidance of 200-215kbpd for FY14.

Mangala – Cairn expects to maintain the currently approved peak production rate of

150kbpd. Of the approved 162 development wells, 157 wells have already been drilled.

In addition to five wells, Cairn is planning 48 infill wells, for which operating committee approvals are in place. These infill wells would later be used for EOR purposes.

Bhagyam – While well deliverability has been below expectations, in place volume has surprised management positively. Of the 81 wells approved in FDP, 66 wells have been drilled. Apart from balance 15 wells, capex approvals are in place for further 15-18 wells. With additional around 30 wells (with higher deliverability) the company expects to reach approved rate of 40kbpd in 2H FY14.

Aishwariya – Production started in March 2013. To date, 11 development wells have been drilled, and two have been brought into production. With initial results in line with the management’s expectations, Cairn India expects to reach approved 10kbpd in a few months.

Barmer Hill – The company has submitted the FDP, and expects production to commence in FY14, subject to FDP approvals.


According to the Cairn India management, the company seems focused on tapping the Rajasthan block upsides. To expedite the approval process, the company has proposed to have an integrated development plan approach to the Rajasthan block, with annual capex approvals, rather than current tedious system of field wise approvals. The company has also recently applied for extension of PSC period in line with PSC guidelines.

Management is targeting over 450 wells in the next three years—these include 100 exploration wells and over 350 development wells.

Cairn currently has four rigs (two drilling and two completion rigs). Two more rigs are scheduled to join in 1Q CY2014, taking the count to six. In addition, the company is planning to contract further five drilling rigs, taking total rig count to possible 11.

Over the next three years the company is targeting capex of $3 billion ($1 billion each year, with 80% in the Rajasthan block). The capex target looks ambitious. Nomura believes that compared to planned net investment of $3 billion over the next three years, total gross investment in the Rajasthan block to date has been $3.8 billion.

Despite the large indicated capex, Cairn would continue to have significant cash in hand. It is a zero debt company, and has cash balances of $3 billion. Nomura expects Cairn India to generate cash-flow from operation of $5.6 billion over the next three years.


Nomura maintains that despite ambitious capex targets, there remains enough scope to raise dividend payout (payout in FY13 at 21.2% including dividend distribution tax) and/or share buyback (the brokerage believes that the share buyback would be a good venue to buy back the remaining 10.3% stake held by Cairn Plc).


Nomura Equity Research has adjusted its model for actual FY13 numbers. It has reduced its FY14/15F EPS estimate by 2% and 4%, respectively driven by lower production and higher provisions for exploration related write-offs and partly offset by higher other income.


The brokerage has marginally reduced its near-term production estimates. Its revised average Rajasthan production for FY14 is 188kbpd (from 190kbpd) and for FY15 is 216kbpd (from 215kbpd). It assumes RJ production to exit FY14 at 200kbpd in-line with lower bound of management target range of 200-215kbpd.


With higher exploration capex, exploration write-offs for dry wells would likely increase. Nomura assumes higher exploration write-offs of Rs14 billion (earlier Rs 2.5 billion) for FY14 and Rs15 billion (earlier Rs5 billion) for FY15F.


Nomura continues to value Cairn India on a sum-of-the-parts (SOTP) valuation methodology. As per this methodology, the brokerage has calculated the NAV of key fields under production—MBARS (Mangala, Bhagyam, Aishwariya, Rageshwari & Saraswati) and 20 other key discoveries (mainly Barmer Hills) using a discounted cash flow (DCF) methodology. The brokerage was earlier valuing recoverable resources in these 20 other discovered fields ((178mmboe - Cairn share 70%) at $6/boe (use 50% recovery).


Nomura’s NAV for these discovered fields is Rs202 per share (earlier Rs229/share). It is more conservative on the Rajasthan block production profile, as it assumes further ramp-up to only 230kbpd (earlier 245kbpd; company target 300kbpd) and also assumes sharper declines.


Nomura continues to value prospective resources of 1.9bboe (assume 10% recovery) at $6/boe. We assign a value of $6/boe to exploration upsides (prospective recoverable resources of 530mmboe—Cairn share of 371mmboe —Assume 50% recovery).


Nomura values large net cash at 17% discount (in line with current dividend distribution

tax). Earlier the brokerage was valuing cash at book value.


Its SOTP based NAV for Cairn India is Rs351/share while its revised target price is Rs350.


According to the brokerage report, Cairn India could face the following downside risks

Delays in government approvals and delays in production ramp-up.

Lower-than-expected oil prices and higher discounts for waxy Rajasthan crude

Further increase in cess on oil production.


Jet gets board nod to issue 27.26 million shares to Etihad

The 27.26 million equity shares allotted to Etihad represents nearly 32% of the Jet’s share capital

Jet Airways on Wednesday said its board of directors has approved issue of over 27.26 million equity shares to Etihad Airways at Rs754.73 a piece.


The number of shares allotted to Etihad represents nearly 32% of the Jet's share capital.


In a filing with the stock exchanges, Jet said its board of directors at a meeting today approved preferential allotment of “27,263,372 equity shares of the face value of Rs10 to Etihad Airways PJSC at a price of not less than Rs754.7361607 (including premium of Rs744.7361607 per share) per equity share”.


The preferential allotment is subject to various conditions precedent including regulatory approvals.


RTI Judgement Series: Display info about councillors fund on sign-boards in each ward office

Acting on a complaint, the CIC directed the MCD to display information on sign-boards about funds allotted to councillors and update the details of expenditure every six months. This is the 79th in a series of important judgements given by former Central Information Commissioner Shailesh Gandhi that can be used or quoted in an RTI application

The Central Information Commission (CIC), while allowing a complaint, directed the chief engineer of the Municipal Corporation of Delhi (MCD) to ensure that the directions given by the Commission (to have sign-boards in the Hindi language displayed prominently) are complied with and send a compliance report.


While giving this judgement on 13 April 2012, Shailesh Gandhi, the then Central Information Commissioner said, “...the Commission had given an order which was to be implemented over a year back. It is unfortunate that subsequently citizens went about monitoring this simple activity and found that the order had not been complied with properly. All government officers must feel ashamed if they are found wanting in simple activity of this nature.”


New Delhi resident Anjali Bhardwaj, along with 317 other citizens, filed a complaint to the Commission under Section 18 of the RTI Act.


The complaint stated that details of funds spent by the respective councillors of MCD should be available suo moto for the knowledge of citizens of the respective areas or wards.


Ms Bhardwaj stated that the 272 councillors of the MCD were allocated certain amount of funds each year, Rs2 crore in 2008-09, Rs50 lakh in 2009-10 and that Section 4 of the Right to Information (RTI) Act envisages that such information should be available in the public domain. She acknowledged that this information was available in English on the website of the GNCTD, however it cannot be accepted that the common man or a person of limited means has the resources or the knowledge of operating or availing such information through the website.


Furthermore, from 2007 till 2010 the department spent about Rs875 crore through the Councillor Funds, Ms Bhardwaj said.


The Right to Information is a fundamental right of the citizens, which has been codified by the RTI Act, No22 of 2005. The Act envisions that all citizens shall receive information primarily by suo moto disclosures by various public authorities as prescribed by Section 4 of the Act. It further envisages that citizens would be required to specifically ask for information under Section 6 only in a few cases. However, when public authorities do not fulfil their obligations under Section 4, citizens have no way but to seek information under Section 6, which in turn becomes a cost for the citizens as well as the government. Obligations under the Section were to be fulfilled by 12 October 2005 and five years have already lapsed since then, Mr Gandhi, the then CIC, noted.


While allowing the complaint on 10 February 2011, the Commission directed the commissioner of MCD to install a sign-board of appropriate dimension, mentioning details of expenditure of the current as well as previous year of the councillor funds for that particular ward. The CIC also directed the MCD commissioner to send a compliance report by 25 March 2011.


On 27 May 2011, the CIC received a compliance report from the then chief engineer (QC) of MCD. In the meantime, the Commission also received several letters from citizens pointing out that the CIC's order was not complied by the MCD.


The Commission then initiated an inquiry in the matter. After conducting an inspection on 20 March 2012 and 23 March 2012, of various zones of the MCD, the CIC found that the concerned officers have failed to comply with its order.


Mr Gandhi, the then CIC, then issued a show-cause notice to assistant commissioners of all concerned zones and the chief engineer (QC). The Commission also asked them to appear before it along with the concerned officers, who were responsible for the non-compliance of its order.


During the hearing on 13 April 2012, several officers from the MCD admitted that there have been some shortfalls in putting up the boards. Mr Gandhi then pointed out that its order should have been implemented a year ago. The then chief engineer Ram Prakash submitted a letter to the CIC assuring that the order had been complied with. And yet it was found that the CIC order was not implemented in many wards.


Mr Gandhi while appreciating the efforts by officers like VP Dahiya, and Roshan Lal, noted that the boards in Ward no201, 203 and 204 at Central Zone, ward nos. 174, 176 and 171 South Zone, Ward no189 Chirag Delhi, ward no171 Vasant Kunj and ward no172 Kishan Garh were found to have been done well and meeting the promise made to citizens.


All officers present during the hearing then assured the Commission that all wards will have boards in the Hindi language displayed prominently where citizens can see them and that citizens will have no cause for complain on these.


They also committed to the Commission that the boards will be there in all 272 wards of Delhi before 1 May 2012. They have also agreed that in case they do not install the boards it would be reasonable for the Commission to impose penalties on the defaulting officers.


Mr Gandhi, then directed the chief engineer Ramesh Chand to ensure that the directions as given above are complied with before 1 May 2012 and send a compliance report to the Commission before 10 May 2012. 




Decision No. CIC/SG/C/2010/001291/11403Adjunct

Complaint No. CIC/SG/C/2010/001291


Complainant                                                : Anjali Bhardwaj & 317 other Citizens,

                                                                            Delhi - 110 17


Respondent                                                 : The Commissioner,

                                                                          Municipal Corporation of Delhi,                      

                                                                          Civic Centre, Minto Road,

                                                                           Delhi - 110 001



P M Ravindran

4 years ago

While Information Commissioners are often found soft pedalling on these kind of issues and dismissing appellants stating that the PIO can provide only available information in an as is where is form, this particular instance shows how the ICs can been assertive and tweek the ears of the public authorities.

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