LONDON, March 14 (Reuters) Britain's Cairn Energy Plc is considering a part flotation of its core Indian exploration and production business, and has raised estimates for the amount of oil in its key Rajasthan fields.
The Edinburgh-based firm said today it would return proceeds from the planned listing on the Bombay Stock Exchange, which would see it offload over 90 percent of its asset base, to investors via dividends and, or buybacks.
The news lifted Cairn's shares over 5 percent to trade at 2,042 pence at 1020 GMT, making it the biggest riser on the benchmark FTSE-100 index and valuing the firm at about 3.2 billion pounds (.5 billion).
The stock outperformed a 0.48 percent rise in the DJ Stoxx European oil and gas sector index.
''Upbeat and detailed release including significant reserves upgrades...Likely to go down well with investors,'' Bridgewell Securities analyst Al Stanton wrote in a research note.
Cairn said it estimated there is more than 3.5 billion barrels of oil in place in its Rajasthan exploration block in northwest India, up from about 2.5 billion previously.
It also increased the amount of oil it expects to be recoverable from its largest fields by around 20 percent.
Chief Executive Bill Gammell said the firm hoped to float part of its Indian assets before 2008. The resulting firm could have a market capitalisation of around billion, analysts said, and be among the Bombay market's 30 biggest, Gammell said.
Listing regulations require Cairn to sell between 25 and 80 percent of the business in an IPO and the exact amount Cairn decides to sell will depend on market conditions, Gammell told reporters on a conference call.
Analysts had expected a sale of the Indian assets at some stage because Cairn's focus has historically been on exploration.
Successful finds, mainly in Rajasthan, propelled its share price fivefold in the past two years.
FAILURE TO ACHIEVE GOOD PRICE? Some analysts were unimpressed by the part-flotation plan, saying it will leave the firm with a big stake in assets which are expected to grow less in value as reserves upgrades slow.
''We feel that this is disappointing, as a partial IPO is a halfway measure that does not solve Cairn's problems ... (Cairn) obviously could not realise a satisfactory price for this asset,'' analysts at Teather&Greenwood said in a research note.
State-controlled Oil and Natural Gas Corp. said earlier this month it was considering buying the fields. Gammell refused to comment on any talks but denied the decision to float reflected a failure to get a good price for the assets.
Cairn posted a net profit of .1 million for 2005, compared to a loss of .7 million in 2004, on the back of higher production and prices. But as most of Cairn's output is gas sold in India, where prices are capped, it means the firm has largely missed out on rocketing oil prices so far.
A Reuters poll of five analysts gave an average forecast of .1 million for Cairn's net profit excluding one-off items such as asset sales.
Cairn tempered the reserves upgrade news by saying production would start later than originally expected at its biggest field, Mangala.
The firm also cut its reserves estimates for the Sangu gas field by 67 billion standard cubic feet of gas after tests showed the geology to be more complex than originally thought.
Cairn said its Rajasthan fields could sustain daily production of 150,000 barrels per day, which would enable India to displace over 5 percent of its 2 million barrels per day imports, even allowing for some demand growth.
India currently imports 70 percent of its oil consumption.
Reuters SR BD1837