Daily Telegraph: Red faces after strikes at company's former oilfields

By Rosie Murray-West, City Correspondent (Filed: 21/04/2004)

There was more embarrassment for Shell yesterday after Cairn Energy, the company which bought its Indian interests, struck oil a third time in a former Shell oilfield.

Cairn shares gushed 91.5 to 981.5p after it revealed the "potentially significant" discovery in Rajasthan. Taken together, the three oil strikes in the area could produce 50,000 barrels of oil a day, according to Cairn Exploration Director Mike Watts, who is no relation to Shell's former chief executive Sir Philip Watts, although he worked for Shell twenty years ago.

"We paid $7.25m (£4m) for the oilfield from Shell 18 months ago, and now the market is valuing at around $600m," said Cairn chief executive Bill Gammell.

Asked whether he thought the sale had been a good commercial decision for Shell, he replied: "I can't comment on that, can I?"

Cairn analysts are estimating that up to 400m barrels could be in place in the oilfield, which Mr Gammell said was "very small" compared to the cuts Shell had made in its own reserve figures.

Mr Gammell said that the problems at Shell had been "unfortunate for the industry", but would not be drawn on whether he felt it would tarnish the reputation of other oil and gas companies. "This may just be an isolated incident."

Cairn has seen its share price rise 170pc since January and now has a market capitalisation of £1.4 billion.

Last month, Cairn unveiled record production, revenues and profits for 2003.

Pre-tax profits rose 58pc to £69.1m in the 12 months to December 31, benefiting from an increased production base. The group produced the equivalent per day of 30,214 barrels of oil during 2003, up 37pc on the previous year, after expanding operations on the Indian sub-continent.

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