Interview: Simon Thomson, chief executive of Cairn Energy

SIMON Thomson is a very popular man. In December, the firm of which he is chief executive, Cairn Energy, took final payment after a long-awaited $5.5 billion (£3.5bn) deal to sell a 40 per cent stake in its Indian oil business finally came through.

And while the bulk of the cash – $3.5bn – will be returned to shareholders next month, this leaves Thomson and his team with $1bn to spend as they – and their shareholders – see fit.

It is an unusual position to be in, even in the toppy world of the global oil and gas industry. The firm’s name has been linked to any number of potential acquisitions, including the offshore Falklands firm Rockhopper, although Thomson denies Cairn is a buyer. For every company like Cairn riding high on the high price of crude, there are hundreds of others that are cash-strapped and desperate for investment to fund exploration activities, which presents a world of opportunity for Thomson.

Last week, the chief executive, who took the post in July, spoke at length to journalists on a chartered jet from the Indian military landing strip near Barmer, where the Mangala processing terminal is based, to Jodhpur. Looking relaxed, dressed in a shirt with no tie and chinos, the athletically built Thomson could be said to share the same sense of confidence that his predecessor Sir Bill Gammell had.

“We are at that point with a very strong balance sheet. That is a very fortunate position to be in,” says Thomson.

“There are lots of opportunities out there and we have the flexibility to be able to pursue things that make sense strategically, without having to resort to getting additional funding.”

The sale of the stake in Cairn India marks the end of an era for the Edinburgh-based explorer. It is rare that small independents like Cairn manage to do what they did in the north-west India province of Rajasthan, which was a complex, long-term – 20 years and more – project going from discovery, to building the production facilities and then selling the firm off.

Described as “young, hungry and ambitious” by his colleagues, Thomson, 46, a law graduate, says he is ready to lead Cairn into the “next phase” in the company’s story.

He says: “Bill’s gift was the ability to harness the best individuals, and bring them forward in a team environment. I hope I have that ability.”

The firm already has a number of cards up its sleeve. Although its exploration in the Arctic waters off Greenland is on hold until it can find a partner to help spread the risk – and cost – of exploration, Thomson insists Greenland remains a long-term play for the group.

“One must recognise in the E&P [exploration and production] business, it takes time. We have a long term vision in Greenland. We believe that will come, it will either come through us or someone else.

“We have positioned ourselves in the best position to maximise that discovery.”

This year Cairn will also tender for field licences in the Mediterranean Sea between Cyprus and Lebanon. There is also Nepal, where a string of temples featuring traditionally spiritual “eternal flames” shows clearly where the hydrocarbons are – and where Cairn has licensed fields. And while Nepal is not that far geographically from northern India, it is currently far too politically unstable for Cairn to make much progress.

The trick that Gammell – now non-executive chairman of Cairn – pulled off in India was to get control of what are now referred to as the Mangala, Bhagyam, and Aishwariya (MBA) fields on “frontier” terms. The initial deal saw the establishment of a 70/30 deal with the Indian national oil company, ONGC, with very beneficial – for Cairn – royalty terms.

Wranglings over this was part of the reason why the deal to sell its stake in Cairn India stretched to 16 months. During that time, the Cairn board saw opportunities slip through their fingers. Now, with that $1bn to play with, this is no longer the case – and Thomson is keen to pull the same trick again.

“For something to be attractive to us it has to offer those elements,” says Thomson of the firm’s next prospects. “And it has to be considered against the balance of what we currently have in our portfolio.

“What we are trying to achieve as a team is to have that balance – either have sufficient cash on the balance sheet or cash flow being produced by our assets. It is a strength to be able to self-generate further activity. You don’t want to do everything by acquisition, the best way is through successful drilling.”

Thomson joined Cairn initially in 1996 from law firm Cameron McKenna. During his time at Cairn he has been tirelessly globetrotting, usually with Cairn’s deputy chief executive, geologist Dr Mike Watts, and has been involved in negotiating transactions in Australia, Bangladesh, Greenland and India.

Thomson brims with enthusiasm for the job at hand. He enjoys regaling those around him with the sort of funny anecdotes that can only be amassed by years of travelling to unusual places, and humorously needling Watts, whose initial hunches about the possibility of finding oil on the border between India and Pakistan have proved so fruitful.

If Thomson’s ego is set to suffer a bruising when his company inevitably slips out of the FTSE 100 when the firm hands out the $3.5bn, then he isn’t showing it.

Instead he insists that staying such a large company “wasn’t attractive to us”.

“We want to stay small, that is one of our strengths, it gives us an advantage.

“The important thing is not what index you are in, the important thing is what is the best structure we can think of to create more value for shareholders.”