Interview: Sir Bill Gammell - CEO Cairn Energy Plc

(BL 12/09/2006) New Delhi - Brushing aside any speculation on Cairn Energy Plc's commitment to the Indian business, Sir Bill Gammell, Chief Executive of the Scottish exploration major says that he has no plans to sell off any of the company's Indian assets.

In an interview to Business Line, Sir Bill, while stating that the company plans to invest in those assets for the long term, also shared his views on the Indian business and on future strategies.

What is the rationale for coming out with an IPO for the Indian business? Do you think the market is right or is there any strategic reason behind it?

We have been focused on South Asia and India for more than a decade and this is a natural evolution to have the company listed in Mumbai and run from India. I see the opportunity to create two world-class businesses, one based in India and one in the UK. I think it's natural to provide more autonomy for the Indian business, to have the management team in India drive that business forward. We have a really exciting, resource base of oil and gas in Rajasthan. We have an emerging market in India that is very much energy hungry and we see it as a natural progression to partially float the Indian part of our business in India. This, actually, is going back to our roots. In the early 1990s we did the same thing with a North American business we had and I think it's very important that you develop a business with the people in the markets in which the assets should be quoted.

Post IPO would there be any change in the stake of the holding company in the Indian business or any change in business strategy?

No, we will continue to explore, develop and produce the hydrocarbons that we find. We continue to produce oil and gas in Andhra Pradesh and Gujarat and will bring the Rajasthan discoveries on stream in 2009. Post IPO, Cairn India will be an Indian exploration, development and production business and the remaining company will be a UK head-quartered business focused on exploration.

Your talks with ONGC on crude discount seem to be moving at a slow pace. Have the differences narrowed down? If the refinery does not come up, what is the line of dispatch Cairn is looking at? Who will build the pipeline if that has to be done?

We are discussing with the Government the possibility of Cairn getting involved in the midstream. We have control of the upstream and we're on schedule for the upstream project. But, as the project gets larger, we're looking for flexibility in the project and looking at integrating the project and the pipeline in the midstream. It has to be in the interests of the Government, it has to be in the interests of Cairn, it has to be in the interests of the shareholders and the State of Rajasthan, to bring this crude to market as quickly as possible. But, the liability under the contract for the taking away of the crude is with the Government. So for Cairn to back off that position, to be involved in the midstream, we need to negotiate with the Government to see if it's in their and our interest to be involved in that part of the business.

The first production from Mangala has been rescheduled again to 2009. Are you confident that it would not slip further?

Mangala is an evolving story. In fact, the whole of Rajasthan has been a large, growing story and continues to be so. When we first announced the discovery of Mangala, which, just to put it in context, was in January 2004, we originally said that Mangala, or the Rajasthan basin, we thought had potentially two billion barrels of oil in place, and maybe had the potential to do 60,000 to 100,000 barrels a day. Now, we see it as 3.5 billion barrels and maybe 150,000 barrels potentially more. Now, looking at the integration of the project leads us to look at possibly being involved in the pipeline. And that takes us into the project slipping into 2009.

What are your plans for NELP VI?

We have been exploring in India for the last decade. There are 26 sedimentary basins and Cairn currently has exposure in five of those basins. The discoveries made by Reliance and GSPC in the KG basin along with our finds in Rajasthan have made the industry possibly look at India in a different way. Naturally, I think it is a good place to invest and a good place to find hydrocarbons. We in Cairn Energy, and obviously in Cairn India, still see India as an extremely attractive place to look for oil and gas and indeed to do business. So, I hope, there are a lot of new entrants into India, and I obviously hope that Cairn India is successful in the bid round. But we'll just have to wait and see on Friday (September 15).