Daily Telegraph (UK): Lucky Cairn finally has a bit of a slip: Cairn alarms investors with poor drilling report (ShellNews.net) 18 Dec 04

City comment

Edited by Neil Collins (Filed: 18/12/2004)

Shell shock of a different kind yesterday, as a nasty dose of reality splatted wunderkind oil company Cairn Energy with all the force of an old-fashioned gusher. It announced a well result which shows that its field doesn't embrace the entire Indian sub-continent after all, and at the same time reported that the Indian government wants a bigger share of the jackpot.

Cairn is this year's luckiest company but its management has been struggling to contain the irrational exuberance of investors. On the back of the fairy tale come true, the shares had shot from 365p to £15.70, a price which included more than a few barrels of pure optimism.

It was a classic case of a feeding frenzy. Investors who were not aboard wanted to hear reasons why they had not missed the boat completely and, since even analysts have to eat, there was always one who could make a plausible case for buying the shares at almost any price.

Nobody wanted to listen to the Cassandras who felt that a valuation of £2.7billion and a place in the FTSE 100 index was going it a bit for an oil minnow. The ever-popular Bill Gammell tried to tell them but they wouldn't listen, so when he told them again yesterday, they really couldn't ignore it.

The shares plunged 18pc to just over £11. Some who think they can put a price on a wildcat say Cairn is still overvalued, considering that production is many years away, and at this price it would fall out of the index as dramatically as it came in.

The fall might disappoint exuberant investors, but what about Mr Gammell and his men, whose bonuses depends on the share price next month?

That's highly unlikely. Lucky Bill and his Scottish pals are rich from their fortunate strike in 2004 – just not quite as rich as they might have been.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2004/12/18/ccom18.xml