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Royal Dutch Shell Plc .com: Cairn to start exploiting Indian oilfield by year’s end

From The Financial Times
By Rebecca Bream in London and Khozem Merchant in Mumbai

Published: July 3 2006 07:57 | Last updated: July 4 2006 03:06

Cairn Energy said on Monday it would start producing oil from its massive discovery in India by the end of this year, and that it had secured $1bn of bank financing for the project, including backing from the International Finance Corporation.

The UK oil company first discovered oil in Rajasthan in north-west India in 2004, and has since become one of the most valuable London-listed oil and gas companies.

Cairn said on MOnday that work was on track to start producing oil from the Saraswati and Raageshwari fields in the fourth quarter of this year at an initial rate of between 2,000 and 3,000 barrels a day.

The largest discovery is the Mangala field, which will start production at the end of 2008. At their peak, Cairn’s three biggest fields will yield 150,000 b/d, or a quarter of India’s crude output of about 650,000 b/d. Cairn currently operates fields that produce 87,000 b/d in India, of which its entitlement is 17,000 b/d.

To finance the development of the fields, Cairn said it had lined up a $1bn bank facility, including $150m from the International Finance Corporation, a unit of the World Bank.

This is the IFC’s largest loan to India. The rest of the facility is supplied by a group of international and Indian banks including Royal Bank of Scotland and ICICI.

Cairn is also working on an initial public offering of its Indian assets later this year or early next year on the Bombay Stock Exchange, a move that will leave it with a much smaller presence on the London market. Cairn is expected to hold a controlling stake in the new Bombay-listed entity, which is to be called Cairn India. The IPO is likely to trigger a large return of cash to Cairn’s shareholders.

Cairn’s Rajasthan assets, along with smaller fields off India’s east and west coasts, will form the bedrock of its new Indian entity.

Sir Bill Gammell, Cairn’s chief executive, said the debt-raising “reflects a long-term investment commitment to India”.

Somit Varma, head of the IFC’s energy division in Washington, said the IFC’s ability to “take on additional risk gave much more room for the commercial lenders to take part on a shorter maturity”.

The IFC has rapidly increased its presence in India in recent years. It has about $1.2bn in equity and debts investments.

Cairn’s fortunes have been tied inextricably to India, after it bought cheaply a block from Royal Dutch/Shell that subsequently yielded the massive Mangala field. According to Cairn, the field holds in-place reserves of 1.1bn barrels of oil.

Cairn’s shares fell 34p to £21.59 on Monday.

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