Licence to Drill

It was the biggest oil find in India in more than two decades. Cairn plc had succeeded where the giant multinational, Shell, had failed. The 2004 oil find in Rajasthan state’s Barmer district not only changed Cairn’s fortunes forever on the London Stock Exchange, it also made the company a darling of the Indian government. The then oil minister, Mani Shankar Aiyar, even asked the state-run Oil and Natural Gas Corp (ONGC) to take lessons from the smaller, nimbler company.

But as expectations built up over the next two years, a realisation dawned that the oil in Barmer was difficult to extract; it solidified even before it was brought up to the surface. Water availability and taking the oil to the market from the Thar were big problems. Chairman Bill Gammell realised that he had to find someone exceptional to get the best out of the prize find.

Rahul Dhir was the man Gammel picked. Dhir was then heading a mergers and capital markets team at Merrill Lynch and had actually made a presentation to Gammel advising him to make an IPO for Cairn in India. Dhir had two other unbeatable qualifications. He had started his career as an oil and gas reservoir engineer before moving into investment banking. He was also steeped in the Indian oil exploration industry simply because he grew up with it. Both his parents were career ONGCians.

It didn’t take long to convince him to take charge of the Indian venture. Looking back, Dhir says the clincher was meeting the people on the ground at the project site in Rajasthan. He signed up as CEO and managing director of Cairn India and moved to from London to Delhi with his wife and three sons.

In August this year came the moment that Dhir describes as among the most emotional in his life. This was when Prime Minister Manmohan Singh opened the valve to start the first crude flowing from the Mangala field in Barmer basin. “Though it may sound clichéd,” he says, “The inaguration was symbolic of a lot of effort.’’ Oil now flows from the wells in Barmer. It is being transported out in heated trucks, not by any standards the most efficient evacuation method. The construction of a pipeline has been out of sync with the project. But no one said that things would be easy.

Virtually from day one, Dhir began to see the complexities of working in India. The first big hurdle was leading Cairn India’s Rs 5,700 crore IPO, India’s biggest ever. The IPO barely scrapped through, as the market had fallen 6 percent the day the issue opened. Corporate rivals had begun speaking of how tough it was to get the crude out of Rajasthan and how it didn’t make sense to sink in so much money. Dhir remembers the run-up to the issue, when one incredulous regulatory official in Mumbai asked him, “You are trying to raise $1.8 billion? A billion with a capital B?” In the end, however, it all worked out. Dhir’s expertise and contacts in the financial world stood in good stead.

But raising capital was only the beginning as scraps with various government authorities and joint venture partner ONGC followed. ONGC’s disappointment came from the fact that, under the terms of the venture, it had to pay all the royalty on the output even though its share in the project is only 30 percent.

Close friends say Dhir has always had a very determined approach to most things. The self-confessed geek who listens to the podcast of The Economist on his ipod, believes that he has to keep learning until the end. He has started studying Quantum mechanics these days because he never did learn it in college. Dhir studied engineering at IIT Delhi, where friends describe him as a dreamy romantic in the first two years and a focussed hard working student in the last two.

However, much of the learning these days for the 43 year old comes from the oilfields of Barmer, where he spends several days every week. Though a lot of it is about technical challenges like finding enough water, it is also about dealing with other problems like a state government determined to increase its share of taxes.

Dhir hasn’t hesitated to take on the government on crucial issues. The biggest such call was to do with the taking the crude oil out of Rajasthan. The government had originally agreed to buy crude from Cairn in the state. The plan changed midway and Dhir found himself stranded in the desert with the oil. The market, or access to the nearest port, was 700 kilometres away in Gujarat. When Cairn proposed a heated (expensive) pipeline to take it to Gujarat, “No one was willing to fund it,” says Dhir. He had to struggle with the mandarins in Delhi for a year so that the cost of the pipeline was included in the project. The pipeline finally got the green signal late last year. Delays have cost the company a packet. But work has begun and the pipeline will be complete next year, he says.

Dhir plays down the difficulty of doing business in India. “Is it tough doing business in the US?’’ he asks. “Of course it is. We have to be pragmatic and work within the system to deliver,’’ he says. Falling back on his training as an investment banker, he says, “We have to treat all these stakeholders like clients and understand how their decision making works. The government, financial investors, our JV partner all have their rationale and want to maximize their own returns.”

A batchmate at IIT Delhi, Umesh Baveja, has been Dhir’s close friend through the years. Baveja, who made a career as an entrepreneur in the power business, recently took over as vice president at Cairn Energy Development, a power subsidiary of the company. Apart from an interest in solving engineering problems, the two share a fondness for Bollywood cinema. “We are the kind that can watch movies like Sholay to the last day of our lives and walk into the sunset asking Kitney aadmi the?” he laughs.

Dhir loves movies starring Govinda and Shahrukh Khan. “Shahrukh’s interpretation in the new Don was amazing and so was the subtlety and humour in Om Shanti Om. His kids share his love for slapstick Bollywood and they are the reason he has watched movies like Sanjay Dutt and Arshad Warsi starrer Dhamal several times. Among Hollywood movies, Dhir is partial to James Bond, especially with Pierce Brosnan playing Bond.

With its mixed British and Indian genes (Cairn plc owns 62 percent of Cairn India), and Dhir at the helm, a Hollywood-Bollywood theme is also playing inside Cairn India. The foreign parent is now a textbook case of a flat-structure, risk-taking oil company willing to go wildcatting into areas that few others are looking at. “Cairn India has to influenced by this and is purely outcome driven and non-hierarchical,” says Baveja.

Working with the local communities is something oil companies can ignore only at their own peril. Dhir is extremely aware of this. The Thar is one of the most populated deserts in the world, and a processing plant of 400 acres could have meant a lot of dislocation, he says. By the time Cairn ramps up to full throttle, pumping out 175,000 barrels of oil per day from Mangala (amounting to a fifth of India’s oil production), there will be close to 200 oil-wells on the field. Several innovations have reduced the impact. One way is to drill multiple wells from one place. “We made well-pads that can drill upto 20 wells from one small area going horizontally into the ground,” says Dhir. We are going to be in Rajasthan for 30 to 40 years or more, we are not in it for the short term, he says.

Dhir feels that Cairn India has in many ways different from its parent by being engineering focused company with oil exploration and production expertise. This could be an area for future development for the company. He is always trying to bring in diversity into the company. The miniscule number of women in the workplace at oilfields is an area of concern. “Oil platforms in the North Sea often have resting places marked out for pregnant women. There is no reason why more women cannot be in jobs on the field. We cannot exclude half of humanity”, he says. He has initiated a program funded by Cairn India, to promote the industry among high school students as a potential area of employment.

The true import of Cairn India’s oil find will be felt over the next decade, as more of the fields in Rajasthan go into production. The company has spread its net further and just begun prospecting in Sri Lanka. Cairn’s assets in the region are all being brought under Cairn India’s banner and that means Dhir’s role is expanding. He will need oodles more of the “can do” attitude that his team had in Rajasthan to find the next big one.