23
Dec
12

Cairn India production ramp up issues

On Friday, there were some news reports that Cairn India is struggling to ramp up its production in Bhagyam oil field at Barmer in Rajasthan (http://www.dnaindia.com/money/report_cairns-ramp-up-goes-kg-d6-way_1779944). Company has been looking to ramp up its production from 175,000 bpd to 240,000 bpd. Given the uncertain global economic environment, crude prices may not rise much from current levels. Inability to ramp up production & flat to declining trend in crude oil prices will ensure that Cairn India earnings remain more or less flat next year.

On every stock price rise, Cairn India will have overhang of stock supply from Cairn Plc residual stake. It gives good opportunity to sell some OTM calls in December & January series. One immediate risk to selling these calls will be US fiscal cliff resolution. In case there is any announcement on fiscal cliff front in the next one week, equities & commodities might rally. But I will sell Cairn India calls more aggressively into that rally.

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