As a result of those finds, Cairn’s shares have risen in steady steps from £4 to within a whisker of £15 today. Such a performance virtually guarantees that the Edinburgh-based company will join the blue-chip FTSE 100 index at its reshuffle on the same day.
But the results will be virtually ignored. The market awaits an independent report on reserves in the main Mangala field, and Gammell’s view of prospects for the three finds. After Shell’s debacle over reserves, the Mangala report by Dallas-based consultants DeGolyer & MacNaughton should conclude that Cairn has found proven reserves of 1.8 billion barrels or so, a figure big enough and independent enough to support most of the value built into the share price.
But Gammell’s description of the potential of the other three discoveries, at least one of which is outside Cairn’s vast exploration area, is what will affect the expectations which are powering the shares.
Much is anticipated in this statement, and many may be disappointed. Some have suggested that taking profits is no bad thing, and investors large and small have top-sliced and done just that. Cairn will want to take some of the steam out of an excitable market.
But beyond the independent report and Gammell’s drilling update, look for his views on where Cairn will be into next year. More than £100m was recently raised — for what? To maximise drilling, and begin putting in infrastructure for what is proving to be a massive field.
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Listen for indications on where he will lead the company. Gammell wants Cairn to remain an exploration company, but such huge discoveries need a production strategy. So what gives more value to shareholders — selling off the prospects now, or drilling and drilling, developing production and adding value? Cairn has promised to produce a development plan for the Indian government. Once the field is evaluated, Gammell has already suggested one answer would be to float the production arm as an Indian business on the Bombay stock exchange, creating value for Edinburgh and Bombay alike.
Gammell’s heart is in exploration, whether drilling in Texas, India or Nepal. But the pressure is on in Edinburgh. No doubt the phones have been ringing with offers, and the more is known about the discoveries, the more strident will the siren voices become.
Callers should remember one thing — Gammell and his board are no fools. Nobody, but nobody, is going to get Cairn or its assets on the cheap.
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On the rocks?
It’s practically impossible to write about whisky without offending someone, so apologies in advance. As a whisky drinker, enthusiastic neutrality is the best course.
I have no difficulty in agreeing with the “small is beautiful” brigade that a complex 18-year-old malt tastes wonderful on a cold, damp night, even though I cavil at spending £30 or more on a bottle.
Nor am I troubled by tales of Spanish youths or Thai businessmen mixing a massproduced blend with chilled cola at humid beach bars. It’s all whisky, after all — and what it means is wealth, exports and jobs for Scotland.
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So the dismay that has greeted the Macdonald family’s decision to sell Glenmorangie rather passes me by. Be in no doubt, it is a great product: it tastes wonderful; certainly it is brilliantly produced and marketed. But is the sale, possibly to foreign buyers, really a matter for such soul-searching? Paul Neep and his team have done a good job, and no doubt they are disappointed that the Macdonald family have sprung this surprise on them. But they are no fools. Brown-Forman, Glenmorangie’s American distributor, also saw it coming. Their 10% stake in the company, comprising a quarter of the A shares and a seat on the board, was never a static position, more a marker to signal that Kentucky would have a seat at the negotiating table.
At worst, Neep and his team are victims of their own success. Glenmorangie has grown out of reach of small producers, and has a unique niche as a malt specialist among the middle-sized distillers such as William Grant and Edrington, both of which would find it a hard swallow.
Using NM Rothschild to market the company worldwide indicates the family believes a high price can be found, and the lack of a management buyout acknowledges this. Perhaps Suntory can be persuaded to buy what Neep calls a “work of art” to hang alongside Morrison Bowmore.
Or perhaps advisers are right in believing that there are no monopoly challenges to stop the big three bidding. The question is, why would they? Diageo’s 27 distilleries are surely enough; Pernod Ricard are, with heavy promotion, about to do to Glenlivet what they have already done to Chivas; and Allied Domecq’s Laphroaig does not sit well with the Broxburn portfolio.
Cynics say that the worldwide marketing is designed to squeeze the price up to “keep it decent”. Brown-Forman, alone or in conjunction with European distributor Bacardi-Martini, will take Glenmorangie, they argue, complete with present operations. For the sake of Paul Neep and his team, I’ll drink to that.