Cairn shares crash after setback in Rajasthan

Shares in Cairn, the high-flying oil exploration company which entered the FTSE 100 Index earlier this year, crashed 18 per cent yesterday after it unsettled investors with news of a double setback in its key Indian oilfields.

Shares in Cairn, the high-flying oil exploration company which entered the FTSE 100 Index earlier this year, crashed 18 per cent yesterday after it unsettled investors with news of a double setback in its key Indian oilfields.

The announcement sent Cairn shares down by 247p, wiping £392m from its stock market value and making it by far the biggest faller in the blue-chip index.

In an operational update on its Rajasthan field in north-west India, Cairn said that it had failed to find any oil after test drilling in a new region north of its big discovery, Mangala. It also said the Indian government believed it was liable to pay an extra tax on crude oil production from Rajasthan amounting to $3 a barrel.

Bill Gammell, the former Scottish rugby international who heads Cairn, admitted that the results of the new appraisal programme had been "disappointing", saying most of the wells drilled had turned out to be dry. The company had previously estimated reserves in this so-called extension area at up to 400 million barrels. It now puts them at between 30 and 80 million barrels.

But Mr Gammell said he was "delighted" with the increased confidence Cairn had in the potential for Mangala, which independent consultants have confirmed contains 1 billion barrels of oil, one-quarter to one-third of which are likely to be recoverable.

Cairn also said that it had raised its production target for Mangala and its other key Rajasthan field Aishwariya to between 80,000 and 100,000 barrels a day. The two fields come on stream at the end of 2007.

Mr Gammell, Cairn's chief executive, was philosophical about the sharp correction in the share price, which had more than trebled since the start of the year until yesterday's update. "Let's see where the share price is in a month's time," he said. "We try hard to under-promise and over-deliver but the market will take a view at any point in time. The pendulum is never in equilibrium."

A number of analysts also felt that the share price reaction had been overdone, with one commenting that the stock was beginning to look cheap at about 1,000p. But Cairn's own house broker, ABN Amro, cut its recommendation on the stock from "buy" to "add" and lowered its net asset value for the company from 1,776p to 1,519p.

Mr Gammell also sought to downplay the potential impact of the tax claims made by the Indian government. Cairn disputes the government's right to levy the tax but says that even if did have to pay, it would only reduce the value of its Rajasthan fields by 5 per cent.

Cairn has enjoyed a meteoric rise since it acquired the Rajasthan exploration rights from Shell for just £7.5m two years ago. Its big breakthrough came early this year when it made its first discovery in Mangala. At the peak, its shares were worth 1,570p, valuing the company at £2.5bn. At last night's closing price of 1,115p, the company was valued at £1.77bn which would mean it losing its FTSE 100 place unless there is a rebound in the stock price. Mr Gammell's stake in the company of 1.1 million shares is worth £12.3m.

News
John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing
News
i100

Other places that have held independence referendums
Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'
PROMOTED VIDEO
News
news

Arts and Entertainment
Blossoming love: Colin Firth as Stanley and Emma Stone as Sophie, in 'Magic in the Moonlight'
film

Actors star in Woody Allen's 'Magic in the Moonlight'

News
A male driver reverses his Vauxhall Astra from a tow truck
newsThe 'extremely dangerous' attempt to avoid being impounded has been heavily criticised
News
peopleThe Times of India said actress should treat it as a 'compliment'
Arts and Entertainment
Jack Huston is the new Ben-Hur
film

It scooped up an unprecedented 11 Academy Awards when it was first remade in 1959

News
news

Watch this commuter wage a one-man war against the Circle Line
News
ebooksAn unforgettable anthology of contemporary reportage
Property
Home body: Badger stays safe indoors
lifeShould we feel guilty about keeping cats inside?
Life and Style
fashion

Olympic diver has made his modelling debut for Adidas

Arts and Entertainment
Toby Jones (left) and Mackenzie Crook in BBC4’s new comedy The Detectorists
tvMackenzie Crook's 'Detectorists' makes the hobby look 'dysfunctional', they say
Arts and Entertainment
Maxine Peake plays Hamlet at Manchester's Royal Exchange
theatreReview: Maxine Peake brings emotional ferocity to Shakespeare's starring part
Extras
10 best table lamps
indybest
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Recruitment Consultant - Soho - IT, Pharma, Public Sector

£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week