Cairn last year became the first Western company to sign a
production-sharing contract in Bangladesh, relating to an area the size
of 40 North Sea blocks
FORMER Scotland rugby winger Bill Gammell, whose connections with past
US President George Bush led him into the US oil and gas industry, has
rucked hard to keep Cairn Energy in the game.
Hit hard by the slump in oil prices, the Edinburgh-based group saw its
market capitalisation, which had grown from #5m in 1989 to #75m, plunge
back to #6m two-and-a-half years ago. Cairn's share price plummeted from
more than 300p towards the 20p mark.
However, the company's stock market value is now #50m, boosted by a
$45m gas discovery in the Gulf of Mexico and some uncanny timing in the
sale of part of its US interests. What is more, Gammell believes
potential gas discoveries in Bangladesh could be worth more than Cairn
Energy itself.
When Cairn's shares slumped, its 42-year-old chief executive, a school
chum of Labour leader Tony Blair, had to decide whether the company
should go or grow.
Displaying the same dogged determination as on the rugby field,
Gammell resisted a landslide of advice to recoup money from the
company's US gas interests immediately, waiting instead until the price
was right.
His gut instinct, which he often trusts more than numerical analysis,
paid off and Cairn has extracted $43m from the US in the last couple of
years.
Helped also by a string of clever acquisitions and pioneering moves
into unexplored corners of the globe, the company is now in better
shape.
When Gammell began investing in US oil and gas partnerships in 1980,
what he himself refers to as an accident of birth ensured he was well
connected.
His father Jimmy, chairman of Edinburgh-based fund manager Ivory &
Sime during its glory days, backed George Bush's oil company.
Following in his father's footsteps, Gammell's fledgling ventures into
the US energy industry involved George Bush Junior, a good friend from
the age of six. He spoke to his high-flying friend on the day he was
elected Governor of Texas, at the tail end of last year.
With his father, now 74, also having served on the boards of the Bank
of Scotland and Standard Life, there is no doubting that Gammell Junior
had a hard act to follow.
However, he has his own connections in high places -- he attended
Fettes College in Edinburgh with Tony Blair. Gammell still has a
photograph of the Arniston House basketball team, in which he and the
Labour leader are seated next to each other.
Cairn's deputy chairman, Dick Mabon, is a former Labour energy
minister and, as his guest, Gammell chatted to Blair again for the first
time in 20 years at a recent fund-raising dinner in Glasgow.
Gammell's success on the rugby field also did something to remove him
from his father's shadow. Capped five times for Scotland during the
1977/78 season, Gammell, who ''hated'' auditing, had turned his back on
chartered accountancy to pursue his rugby career. However, he still
married an accountant, with whom he now has two young sons.
He jokes: ''When I grew up, people knew me as Jimmy Gammell's son, and
then I played for Scotland and they knew him as Bill Gammell's dad.''
Gammell took Munro Sutherland, now finance director of Cairn Energy
USA, with him when he left accountancy firm Arthur Young, and the pair
bought a two-man insurance-broking business, moving on to financial
services and fund management.
In 1986, what was by that time Cairn Energy Management took over
control of Ivory & Sime's oil and gas funds, with Ivory taking a 50%
stake in CEM.
Included in the funds was Caledonian Offshore, a North Sea-based
investment vehicle administered on a managed contract basis. In 1988,
Caledonian Offshore acquired Cairn Energy Management, with the former's
North Sea block swapped for Conocco's UK onshore portfolio.
Gammell, optimistic about the future, took the bulk of his stake in
the re-named company in warrants. Ivory & Sime took its share in loan
stock.
To break even by the warrants' expiry in 1998, Gammell, who worked on
the rigs as a student, will have to raise the share price of Cairn above
200p. The company's shares are currently trading around 81p but its
chief executive is confident that his choice of warrants will ultimately
pay dividends.
Advances in computer technology mean the likes of Cairn can now
compete with the industry big boys on a more even footing.
Meanwhile, technological advances on the production side, with
''horizontal drilling'' now possible, will further boost Cairn's UK
onshore oil production, which has grown to 3000 barrels per day from 500
bpd a couple of years ago.
Gammell's entrepreneurial attitude is reflected in the fact that Cairn
last year became the first Western company to sign a production-sharing
contract in Bangladesh, relating to an area the size of 40 North Sea
blocks.
With potential reserves estimated at several trillion cubic feet --
three tcf are equivalent to 500 million barrels of oil -- Cairn may also
find itself involved in the development of the gas and power market
within Bangladesh.
Cairn is currently ''shooting seismic'' in the Bay of Bengal and there
is no doubting Gammell's excitement. He says: ''If we are right here,
the numbers are mind-blowing. The potential we see in Bangladesh
certainly could be greater than the existing capitalisation of the
company, but only time will tell whether we can realise that value.
''If I'm right about Bangladesh, this company in two or three years
time is going to look very different from what it does today.''
There was always a feeling that the value of Cairn's US interests was
never fully reflected in its share price and, with its stake in Cairn
Energy USA having been reduced from 100% to 16.5% over the last couple
of years, some of the cash taken out of the US is being invested in UK
operations.
Whether by chance or design, Cairn Energy's logo ended up in the shape
of a rugby ball, reflecting Gammell's attitude: ''The culture of the
company is to pick up the ball and run with it and run as far as you can
go.''
He is striving for the #100m market capitalisation which he believes
is the minimum necessary for a company such as Cairn to realise its full
potential.
He explains the company name, which dates back to his first business
in the late-seventies: ''The idea of the original cairn was basically
building a business stone by stone, trying to get to the top of the
mountain.''
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