Cairn India Set To Increase Oil Production

As per media reports, Vedanta group company Cairn India is all set to increase the output from its Rajasthan oil fields in the next few days, when the Aishwariya oil field would start production. This news has a positive bearing on the company, which will see its oil production rising by about 10000 barrels per day (bpd) at its peak.

Presently, Cairn India produces 175000 bpd of oil from the Rajasthan field, but has a potential of touching a peak production of 300000 bpd. Mangala, Saraswati, Bhagyam and Raageshwari are the three wells which are currently operational. The addition of Aishwariya, therefore, would be a positive for the company.

The company has started drilling in the Rajasthan block after receiving an approval for exploration, and expects positive results from this expansion plan. The media reports also suggest that the Aishwariya well is deeper than the other wells, and hence, may have higher oil reserves than were initially estimated. All in all, the Aishwariya well would lead to higher oil production as well as more revenues coming in. When fully operated, this block should add about 5% to the company’s total revenues.

Besides the expansion plant, Cairn India is also in said to be buying the London-listed Cairn Energy Plc, which could decrease its dependence on the Rajasthan oil fields. The company has a very strong financial position, and expects to generate a free cash flow of over USD 1 billion every year until 2012. Any further news on this acquisition front too would be positive for the company.

Considering these factors, investors can enter the counter at its price with a long-term horizon.