5 October, 2008

Macquarie Research has cut the target price on the stock by 1.4% to Rs 276 due to the change in 2008 West Texas Intermediate (WTI) forecast but it has also reaffirmed its ‘outperform’ rating on the stock..

“We have revised down the WTI crude oil price forecast by 6.3% for 2008. Our new forecast has the 2008 figure adjusted down to reflect the recent weakness in prices and the risk that slowing demand growth keeps prices in a range of $100-110/bbl (blue barrel),” said Macquarie in a note to its clients.

The firm has cut CY08E profit-after tax for the company by 7% and increased CY09E PAT by 1.8% after factoring in new crude oil price assumptions and INR/USD exchange rates. According to Macquarie, Cairn plans to use enhanced oil-recovery (EOR) techniques at its Rajasthan fields.

“If successful, EOR may increase the recovery factor by 10-20%, or P2 reserves, by 309m barrels of oil equivalent(BOE) compared with 794m BOE currently, thus extending the production plateau,” the Macquarie note said.

“Cairn plans to drill 15 exploratory wells in CY08, most of them in the second half. We have assigned a premium of Rs 50 per share (around 18% of equity value) to Cairn’s strong track record in striking oil,” the note added.