Scott Reid: Cairn rakes in black gold of India

The 8 per cent gain means that shares in the Edinburgh-based firm have almost doubled in the past 12 months, giving Cairn a market value nigh on 6 billion.

The cause for the investor celebration wasn't too difficult to unearth in yesterday's lengthy results statement.

Net profits of $53 million (35.4m) were nearly five times the level generated a year earlier, while a group-wide cash balance of $1.2bn is the sort of figure to make any bank manager smile.

Crucially, though, Cairn upped its output forecasts for its vast Indian fields, where production commenced last summer.

It now talks of there being some four billion barrels of oil trapped beneath Rajasthan – "discovered in place resource" – up from a previous estimate of 3.7 billion. A further 2.5 billion barrels – "prospective in place resource", to continue the industry speak – may lie undiscovered.

Even by the more conservative measure, Cairn is expected to meet more than a fifth of the fast-growing nation's oil demands for several years.

Currently oil is being transported by road tanker from the deserts of Rajasthan, but there was also positive news yesterday on a crucial pipeline to pump the black gold to refinery customers hundreds of kilometres away.

Exploration director Mike Watts noted that the main pipeline, which heats the waxy crude to maintain its fluidity, is finished, with work on spurs to the refineries nearing completion.

Crude is scheduled to flow through the pipeline during the second quarter of this year.

As the Scots firm holds the majority stake in offshoot Cairn India, it can probably sit back and watch the dollars roll in.

Not that Gammell & Co appear content to rest on their laurels. Far from it. With its coffers suitably bolstered, Cairn's exploration business, Capricorn, has its sights set on another vast territory.

Greenland has become the new India, and Cairn is hoping to grab a place on the front row as the race to find oil gets underway.

Gammell, a former Scotland rugby international, is the first to admit the extent of the gamble, pointing to a one in ten chance of striking it rich.

Still, the group is moving two rigs into place and plans to push the button on its offshore exploration programme this summer.

The prospects it plans to drill this year in Greenland could contain four billion barrels of oil. The "unrisked" figure is a thumping 16 billion barrels – four times that revisited Rajasthan estimate.

The scale of what could lie in store for the company beneath the icy waters surrounding Greenland was highlighted in a note yesterday from Evolution Securities.

"Such large structures have the potential to put Cairn's Rajasthan project in the shade and provide the next leg in the Cairn story," the broker said.

Others took a more cautious stance.

"These numbers should be taken with a pinch of salt, given there is little data to back them up," noted Peter Hitchens, oil analyst at Panmure Gordon.

"However, it does show the potential of the region," he added.

Cairn has shown it has the tenacity to stick it out, to aim for and capture the bigger prize.

The challenge now will be to replicate its Indian success story in much chillier climes.

Headline rate falls – but keep an eye on the gate

TALK about timing. On the eve of Alistair Darling's make-or-break Budget, news yesterday emerged of a bigger-than-expected fall in inflation.

Official figures showed a drop in the Consumer Prices Index (CPI) benchmark last month to 3 per cent from a 14-month high of 3.5 per cent in January.

It sparked some rather predictable predictions from economists that interest rates would remain at their current record low of 0.5 per cent until the end of 2010.

The Bank of England has been insisting for some time that the spike in inflation at the turn of the year would be short-lived.

However, stubbornly high fuel prices and volatile factory-gate inflation suggest that we may not be out of the woods just yet.

Scott Reid: Cairn rakes in black gold of India – with its eyes on Arctic