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Cairn Energy (CNE) – Finals PTP: £773.64m (-£46.78m) Divi: n/a (n/a)

The difficulties Cairn is facing in developing the massive oilfields in Rajasthan are not altogether surprising.

It is a massive development, which requires huge levels of capital investment, and alongside this latest set of results the company announced it is still waiting for the Indian government to agree that it can pay for a crucial pipeline from oil revenues once the field is on stream.

The construction of the pipeline, which will link the fields to the refineries, is expected to start in H2, with the first phase, connecting Barmer to the Viramgam pumping station, expected to be complete by early next year.

Management also confirmed that, while reserves estimates were up, its share of development costs had also risen to $1.8 billion.

Some observers believe the eventual figure may be higher – due to the increasing costs of equipment and steel and wider cost inflation in the oil services space.

The company says that revised cost estimates will be announced in the middle of this year, when ‘the majority of contracts for the development will be in place.’

In terms of the numbers the company swung to a pre-tax profit on the back of the flotation of Cairn India. The market’s reaction to the results was reasonably positive with stock creeping up to just less than £29.

Seymour Pierce energy analyst Peter Hitchens reiterated his ‘sell’ recommendation saying he could see no reason why the company should trade above the net asset value of £22.38.

Shares says: The stock does seem overvalued considering the number of obstacles that still remain in Rajasthan.

by: Tom Sieber