Vedanta’s Anil Agarwal must strike black gold to keep brand Cairn alive

When Anil Agarwal’s Vedanta Group bought a majority stake in Cairn India from its Scottish parent Cairn Energy Plc in 2011-12, the buzz was that one day he would merge the oil explorer with one of his group companies.

What was a buzz then has now become a reality with the group concluding the merger of Cairn India with Vedanta Ltd on Tuesday. The challenge, now, before Agarwal and his team is whether they will be able to sustain the brand Cairn India.

To prove the naysayers wrong that Cairn acquisition, in the first place, was purely to enjoy the advantages of the then prevailing high crude oil prices, Vedanta will have to have a strike rate.

Right now the portfolio is restricted with acquired producing assets such as Barmer, Rajasthan, the premium one.

Most industry trackers agree that since Cairn India came under Vedanta’s fold, neither have new assets been acquired nor has any fresh discoveries been made in new areas.

The DNA of Cairn India was of an explorer — to discover oil and gas. In the oil industry, the strike rate matters and what Agarwal has is the already-producing assets and known geography, though Rajasthan does throw up its own set of challenges.

Another change that Cairn has seen since the Scottish parent moved out was at the work place. Though Vedanta has not tampered much with the work culture that existed in Cairn, a steady exodus has been seen at the top as well as mid-management levels.

The company has seen the exit of three high profile CEOs since 2012. In 2016, Mayank Ashar, who took over in 2014, exited. Ashar had succeeded P Elango (who served as CEO from 2012 to 2014). Rahul Dhir, who served as the first CEO, resigned within months of Agarwal’s Vedanta Group acquiring a majority stake in Cairn India from its Edinburgh-based promoter Cairn Energy in December 2011-January 2012.

While everyone remained tight-lipped about the reasons for the churn, industry trackers attributed it to ‘change in operational style’. Industry observers say exploration is a high risk, high cost business, and return on investments are not guaranteed. Besides, the company had laid off almost 400 employees in 2015, when there was a slump in crude oil prices.

After the merger was concluded, Tom Albanese, CEO of Vedanta Ltd, said, “Our continued focus to remain a low-cost operator with low leverage will provide us the financial flexibility throughout the cycle and help us create long-term value for all stakeholders. This merger will increase the appeal of Vedanta Ltd to global investors as it simplifies the structure and increases the size and free float of the company.” Interestingly, Albanese himself is on an exit mode.

Talking about change in operational style, analysts whom BusinessLine spoke to say, for Cairn, Vedanta is also going for outsourcing work — getting service contractors with technical expertise to enhance output. “The functioning of the company will not be impacted by the exits if key work is outsourced,” an observer said.

Recently, Cairn India appointed oil and gas exploration experts Melody Meyer and Atul Gupta as technical advisors. Cairn India seeks to invest ₹30,000 crore over three years to enhance output from its Barmer asset where ONGC is a partner.

In fiscal 2017, Cairn India’s average gross production had declined by seven per cent, primarily due to natural decline in the fields and planned maintenance shutdown in Rajasthan during the current year.