Business Today

Steady Pipeline

twitter-logoManu Kaushik | Print Edition: July 24, 2011

The past three years have been unprecedented for petroleum drillers across the world, as volatile prices have made cash flows unpredictable. But things have been fairly smooth at Cairn India, because of its low-cost operating model.

Indrajit Banerjee
55, Executive Director and CFO
My best practice: Trust, transparency and timeliness
What gets my goat: I work in Gurgaon and live in Delhi. The drive home puts all my nerves to the test
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Cairn India kept direct operational expenditure in the field at $2.3 a barrel. "We make sure that we are at the low end of the cost curve throughout the lifecycle of the fields," says Indrajit Banerjee, executive director and chief financial officer.

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In 2009, in the thick of the downturn, Cairn India raised $1.6 billion through debt to finance its project in Rajasthan. Part of this money was raised in the UK, and part in India.

The Indian lending did not come through without trouble. Cairn had to negotiate hard with the banks, as they were not used to reserve-based lending, that is, lending on the strength of the borrower's oil reserves. "We had to create a legal structure that linked the lending to our participating interest in the project, and secure it that way," he says.

Dealing with foreign exchange market risks is par for the course, as far as Banerjee is concerned, since most of Cairn's earnings are in dollars. "Since part of our expenditure is in rupees, risk comes into play whenever we need to convert dollars into rupees," he says.

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So Cairn is active in currency hedging, mostly in the form of options that protect against future rupee appreciation. "If the rupee appreciates, we are protected, and if it depreciates, we tend to gain because the dollar value goes up," he says.

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