Asian Voice - Saturday 8th January 2005

Oil prices rise 30% in 2004

GAURAV SHARMA IN THE last trading day of 2004 for US oil prices were down $1.08 at $42.56 a barrel which was around $10 higher than the beginning of the year, but $13 below the contract's all-time high of $55.67 on October 25. Oil prices have fallen hard over the last two months on signs that high fuel costs were beginning to weigh on economic growth. A mild US winter and year-on-year surplus in U.S. crude stocks have also prompted speculative funds to take money out of energy and pursue equity or money markets. ''Either the system copes well enough with the distillate demand surge which will cause short term price weakness, or the system begins to struggle to meet demand, in which case there is still a significant price upside," according to a Barclays Capital bank report made available to the press. Oil rallied steadily this year as a surge in demand forced OPEC producers to pump at

their highest level in 25 years, leaving little spare capacity to deal with unexpected outages and sharpening concern over oil supply security Palling prices spurred OPEC to trim 1 million bpd of excess supply from January 1, hoping to prevent a rapid build in stocks they fear could drag prices lower when demand wanes after the northern winter, The oil price outlook for early next year binges on US weather, which dictates heating oil demand in the Northeast, the biggest market for the fuel, dealers said. However US Securities house Goldman Sachs believes that we may have seen the best of the oil sector for time being despite sky high crude prices. Analysts at Goldman reckon the fourth quarter will still tum out to be the best on record but all the signs post fourth quarter figures point to lower earnings forecasts in the months to come. The US major has lowered its 2005 forecast and fair value estimate for the European oil sector to reflect the impact of a weaker dollar.

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FinancialVoice

Cairn Energy's Indian drilling agreement extended
GAURAVSHARMA OIL firm Cairn Energy has had its key exploration agreement with the Indian government extended by 18 months. A spokesperson for Cairn said that the extra time should allow it to close in on new crude oil deposits in its most valuable fields. India is currently among the world's largest importers of crude and is A working with firms such ~s .Cairn to. ~evelop its indigenous (;)11 mdustry. to part-feed Its boommg economy. Cairn is reaping the benefits of this drive as nearly 80% of its stock market value is based on oil deposits in Rajasthan, for which it commenced drilling operations in 1995. The new exploration area covers 2,884 square kilometres (1,154 square miles), and is estimated to contain between 35 million and 70 million EMERGING

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this extension in Rajasthan, which allows us to continue to carry out a comprehensive evaluation prior to agreeing a long term development area," chief executive Bill Gammell said in a statement. Mike Watts, Cairn's director of exploration and new business, said that while the company was very optimistic =..lIrLIJU:..rl about its South-Asian Cairn Energy site in India business, there were barrels of crude oil. India always risks attached to currently imports about 2 drilling for oil. Mr Watts million barrels per day said that Cairn has had its (bpd) of oil, Cairn said, finds assessed by indeadding it aimed to provide pendent auditors and about 150,000 bpd. pointed to the fact that the Cairn said it was in company has had a one in talks about exploration in three success rate when the southern area of drilling for oil in the Rajasthan, and the compa- region. ny made six new discoverHe continued that this ies in the area last year. Its was probably the last sterling discovery till date chance Cairn would have remains southern Mangala to extend its contract and field in Rajasthan, which the firm was looking to is estimated to hold 1.07 sign more long-term develbillion barrels. "We are opment agreements that delighted to have secured would run until 2041.

Asian Voice - Saturday asth December

2004

High flying Cairn. gets a realitv check ..

A Cairn Energy site in India (Inset) Chief Executive Bill Gammel GAURAV SHARMA

FOlLOWING A fruitful Indian summer which saw emerging Oil Giant Cairn Energy's share touch dizzy heights, a recent series of events seem to have given it a cold if not a frost bite. Earlier this week, shares in the UK oil firm plummeted 18% after a disappointing drilling update and a warning over possible tax demands. This is quite a contrast given the fact that Cairn's shares jumped by almost 400% earlier this year. Investors had piled into Cairn after the company announced significant oil finds in India this year. Cairn, which also operates in Nepal and Bangladesh, was catapulted into the FfSE 100 index of leading UK shares earlier this year after the sharp rise in its share price. However, company statement this week said that tests had shown no significant finds in one of its Indian oil fields, but was upbeat about the potential of other areas. It also said the Indian government had told it to pay a production tax, for which Cairn argues it is not liable. Chief executive Bill Gammell said on Friday (17/12/04) he was "disappointed" with exploration in the so-called N-C extension area in Rajasthan. Investors had held high hopes of major oil finds in this area But Cairn said estimates had been revised in what was a "significant downgrade of the initial expectation". Cairn also said that the Indian government believed the company was liable to pay taxes under its production-sharing contract. The company said the rate would be about INR 900 (£10.50) per tonne, or seven barrels, of oil. A spokesman for the firm said that the tax would wipe 5% of the field's current value. "Cairn refutes the government's position," Mr Gammell said. He insisted that the contract made it clear that the tax should be shouldered by the licensee - India's state-run Oil & Natural Gas Corp (ONGC) - and not the contractor. ''\\e have a pretty strong legal case here," he added, saying it would only become an issue once the firm started production. Investors took a dim view of the statements though. The shares closed down 247p, or 18%, at 1115p. The disappointments overshadowed increased production targets for Cairn's existing oilfields. The company raised targets for its Mangala and Aishwariya fields in India from 60,000 barrels a day to between 80,000 and

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100,000 barrels a day. Its Mangala field, thought to contain a billion barrels, is its biggest find to date. Cairn added that it would be appraising another field early next year. India's Oil and Natural Gas Corporation (ONGC) has said it will not acquire a 30% stake in Cairn's recent Rajasthan oil find if the Indian Government did not exempt it from paying royalty on the UK firm's share of crude oil. ONGC, which has the right to take a 300A>quie ty in any oil and gas find in Rajasthan block, is liable to pay 20% royalty not outy for its own share of production, but also of Cairn Energy. A top company ONGC official is quoted by the Indian press as having said "Over the life of the field, we will pay over USD $1 bn in royalty, much more than what a 30 per cent stake would entitle us". IT ONGC exercises its 'walkin rights', it will have to contnbute 30% of the cost of developing Mangala and Aishwariya oil fields, which are targeted to produce between BO,OOO and 100,000 barrels per day from 2007 end. A spokesman for the Indian Ministry of Petroleum and Natural Gas said it was eontemplating issuing a Presidential Directive 'if ONGC deters". Prior to the New Exploration Licensing Policy, India signed 24 production sharing contracts for exploration blocks (including Cairn's Rajasthan block), and ONGC is the licensee in all of them. As per the PSCs, licensee ONGC is liable to pay cess, royalty, PEL fees, rentals etc. on behalf of companies who signed the PSCs. Meanwhile in London, the Financial Services Authority (FSA) has launched an inquiry into the movement of Cairn Energy shares in the lead-up to the 18% fall it suffered last Friday. FSA investigators are looking at

sharp drops in the company's shares that preceded a disappointing trading statement. City analysts were disappointed that a potential tax dispute had not been made clearer earlier, but Cairn finance director Kevin Hart said that chief executive Bill Gammell had notified the Stock Exchange as soon as he had discovered the problems. Mr Hart said, 'Bill flew out to India at the beginning of the week and passed on the news as soon as he heard it from the Indian government.' Mr Gammell, a close friend of Prime Minister 1hny Blair, was crowned Ernst & Young Entrepreneur of the Year in October this

yearo He founded Cairn Energy 24 years ago, but he hit the jackpot in January when Cairn discovered a vast oilfield in the north-west Indian state of Rajasthan. He paid Shell £10 mn for the oilfield, which is now valued in the City at nearly £1.5 bn. With the initial euphoria having waned courtesy the developments, many city analysts believe its share price will now stabilise. On hindsight few expected Cairn's price to defy market gravity for so long. Even despite the faIl in share price (22% for the week), Cairn is still the fastest-growing share in the FfSE 100 index,

Wall Street cheers Bush victory
GAURAV SHARMA

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The Dow had lost 4.85% of its value in the three weeks immediately after the 2000 election, when it was unclear who would occupy the White House. Mr Kerry was reported earlier on Wednesday (03.11.04) to have called Mr Bush to concede defeat, abandoning last-ditch hopes of carrying the vote in the swing state of Ohio. Not everyone was in buoyant mood. Some city analysts contacted by Asian Voice predicted that the jump in share prices would be shortlived based purely on the feel good factor, saying investors would quickly focus once again on the health of the US economy. US economy's performance has been mixed, with solid growth offset by disappointingly low job creation figures, and mounting worries over a record budget

THE us stock market has risen sharply on news that George W Bush may clinch a second term as president. By about 1800 GMT, the Dow Jones share index was up 140 points, or 1.3%, at 10,176. The higher share prices mirror relief felt in financial circles that a clear cut winner has emerged from what proved to be a tight poll, unlike the fiasco of the 2000 US Presidential elections. Investors had initially worried that the outcome of the poll would be inconclusive, paving the way for a repeat of the legal wrangling that marred the 2000 election.

deficit. Its clear that President Bush has his work cut out. Elsewhere in the financial markets on Wednesday (03. 1 U)4) , the tech stocks drove the Nasdaq index was up 1.1% at 2,007 in late morning trade, while share prices in London, Frankfurt and Paris were also higher. The dollar dipped slightly against the euro and climbed against the yen, while US oil prices fell seven cents to $49.55 a barreL Economic issues, as well as the war in Iraq, have been at the forefront of the c;;ampaign. President Bush focused on the fact that two million jobs have been created in the past year, claiming that it has vindicated his tax-cutting agenda. His investor friendly image has only helped the President's standing as far as the corporate sector goes and many on Wcill Street are more relieved than jubilant that he will occupy the White House for another term.

Oiljmnps as Bush nears victory

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City Analysts said a second Bush administration would continue filling US emergency oil stockpiles and could stoke traders' nerves about US policy in the oil-producing Middle East, particularly OPEC's second-biggest producer Iran.

OIL PRICES have leapt back above $50 as President George W Bush edged to a US election victory, a result which traders say will bolster fuel demand and underpin anxiety over security of Middle East supply. US light crude by 1230 GMT on Wednesday rose 63 cents to $50.25, reversing part of a 12% pullback over the past week. Brent crude was up 57 cents at $47.12 a barrel.

Prices had tumbled from last week's record high at $55.67 on speculation that a win for Democratic challenger Iohn Kerry would halt deliveries into the Strategic Petroleum Reserve, and do more to encourage energy conservation. According to the Reuters News Agency traders also fear further instability in the Middle East, a factor that has fuelled oil's rise of more than 50 percent this year. In Iraq saboteurs carried out the biggest attacks yet against the northern pipeline infrastructure on Monday evening, forcing Baghdad to halt 300,000 barrels per day of exports via Turkey. Some nations face economic recession if oil stays above $40 a barrel, the International Energy Agency chief economist said on mxlnesday (03.11.04).

Asian

Voice

- Saturday 2nd October

2004

Financial Voice

21

Cairn Energy enjoys an excellent Indian Sunnner

Cairn', IncIan Sites GAURAV SHARMA ,...-------, ing if it is the right time to sell? There are two sides to this. The Net Asset v..Jue (NAV) for Calm, if one locks at published figures" , seem to be within a pretty wide range from 913p to II66p but weD short of the l400p plus figure which the share is currently trading at. It is dear that Cairn's share is way ahead of the events leading to the oompany's prospective black gold finds in the subcontinent. Havin,j: said !hat, f~~ my own part I could not find a single City analyst (though some may beg to differ) that the emerging energy major will fail to dose the gap between in its NAV and its market price. Although pre-tax profits oru-y totaDed £69.1 mn last yelll; investors expect these to grow significantly once the first round of oil starts to !low from the field in Rajasthan. My observation over the last (our quarters is that Cairn has been very conservative with its numbers so far. It always prefers to under-promise and yet apparently overdelivers when it goes public with its financial results. If you have held the shares for over an year, now is certainly a good time to sell and make in excess of £10 per share over your initial investment. However my gut instinct is to hold on to them, for another Indian summer could bring yet newer surprises from Cairn and its investors.
• NAV prices fOl' Sepaember ~ tHo ... ), Caaoca>nI. o..-he _ om! ftom ABN AImo

IT IS doubtful that any analyst who seriously follows the fortunes of major corporations dealing in black gold would deny that the rise of Edinburgh-based oil and gas group Cairn Energy has been anything but meteoric. Early in September, its place among the UK's top 100 f.nns was COltfirmed, as Cairn powered into the elite nSE 100 index alongside much larger rivals SheD and SP. Cairn Energy reached a new record prior to its elevation to the FTSE 100. Merely a week before the elevation, it's share added 45p to its value and was quoted at 1532p, thereby surpassing the £15 level for the first time. September also saw investors taking in profits after first-half results from the group, with dealers expecting the shares to peak at £15 over the medium term. The oompany is currently valued at more than £2.3 bn and on an year-onyear basis it has witnessed a glorious 300 per cent share price rise.

The Cairn Story: Case of an Indian Swnmer
Cairn saw its shares more than triple in value since January 2004 when it announced the first of its ten finds in the Indian subcontinent on an oil field purchased from Shell for £4 ron in 2002, Subtle irony it was that while Cairn was going from strength to strength SheD was under pressure for having revised its oil reserves leading to the exodus of a number of its high profile executives. This prized acquisition is the Mangla Oil field in Rajasthan state where initial estimates of oil in plate range fro", 450 to 1,100 million barrels, with preliminary recoverable reserve estimates in the 50 to 200 million barrel range. More was yet to follow. On March 9th 2004, Cairn announced a second significant Oil discovcry in Rajasthan 52 kms north-west of Saraswati in proximity to Mangla The preliminary estimates of oil in place for the second Indian field ran# from 130 to 470 million barrels, with preliminary recoverable reserves estimated to be in the range of
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Calm's expbadons in Soulh Asia 20 to 80 million barrels. Both oil fields oould be in production by 2007. "Caim's Growth Strategy is driven by a focus on exploration", said Dr Mike Watts, Exploration Director for Cairn Energy, The company proudly declares that it conoentrates its activities in the South Asian Markets, where it seeks both to in~ the value of its existing businesses and to create new organic growth opportunities. Presently Calm has exploration interests in Eastern, Western and Northern India along with additional contracts for e-xploration in Nepal and Bangladesh.

Share verdict: To sell or not to sell- that is the question?
I remember that afternoon an year ago when I sought opinions from feDow financial journalists about Cairn's prospects. The chant of "Cairn who?" echoed across the table that day. I remember it full well as would a number of other doubters for at that point in time in 2003, the company's shares were just above 350p mark. Today it s around the ISOOp mark So those lucky souls who hold its shares must be wonder1,600 1,500 1,400 1,300 1,200

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Cahnwho?
While its current focus is on South Asia, the Indian desert state of Rajasthan was not where Cairn began. Rome was not built in a day, nor was the latest British Oil Giant. The energy company was set up by chief executive BiD Gammell in the 1981 and originally explored for oil and gas in the North Sea. In 1996 it acquired Command Petroleum Ltd In recent years its focus turned to South Asia and the rest is history. 'Inevitably', as some City Analysts would describe it, Cairn announced in August 2003 that it had disposed its interests in the Dutch North Sea and Gryphon Field in the UK North Sea -----

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27th November to 3rd December 2004

Reliance feels the heat as Ambani brothers feud

Reliance Industries Chairman Mukesh Amhani (R) and his brother, vice chairman Anil Amhani (L) with their Late father Dhirubhai's image in the background taken at an earlier Reliance Industries AGM. AFP PHOTO

GAURAVSHARMA THE RUMBLINGS of a speculative discord between Ambani Brothers over the ownership of Reliance, India's largest petrochemicals and refining company came out into the open when Chairman Mukesh Ambani

said in an interview that there were 'ownership issues' between him and younger brother Anil Ambani. Mukesh said on Tuesday in a communication to all its employees that he as the chairman and managing director is the "final authority" on all matters concerning the company. Rumours of

differences between Mukesh and younger brother Anil who, is a member of the Upper House of the Indian Parliament (Rajya Sabha) and is married to a former Bollywood Star, had been circulating in Indian corporate circles for a long time. Continued page 15

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