Oil Crash Spurs Metal Tycoon to Write $3 Billion Off Cairn India

(Bloomberg) -- Billionaire Anil Agarwal-controlled Sesa Sterlite Ltd., which runs India’s largest onshore oilfield, took a $3 billion writedown after crude’s crash eroded the goodwill value of Cairn India Ltd.

Brent prices were above $100 a barrel when Agarwal bought the Indian unit of Cairn Energy Plc for $8.67 billion in December 2011. Two-thirds of the amount was for goodwill, the surplus paid over the fair market value. After a 49 percent drop in crude prices last quarter from a year ago, Sesa on Wednesday wrote down more than half of that goodwill.

“The writedowns by oil and gas companies have become a global phenomenon triggered by the oil slump,” Vikas Halan, vice president at Moody’s Investors Service, said in a phone interview from Singapore. “While the writedowns are non-cash and will be reversed when the oil prices are back up again, lower oil prices will have an impact to the point that companies will have to reduce their capital expenditure plans.”

Sesa joins global oil and gas peers including BG Group Plc, the U.K.’s third-largest natural-gas producer, Australia’s Oil Search Ltd., and Abu Dhabi National Energy Co. in writing down asset values. BG in February took a $5.94 billion post-tax impairment related to a writedown of some assets and a cut in future price assumptions, while Abu Dhabi National on April 1 said it took a one-time charge of 3.3 billion dirhams ($898 million) on falling crude.

Surprise Loss

The writedown by Sesa Sterlite, a producer of oil and gas and base metals, led to an unexpected quarterly loss, the first in at least seven years. The net loss of the group including Cairn India was 192.3 billion rupees ($3 billion) in the fourth quarter ended March 31, compared with a profit of 16.2 billion rupees a year earlier. That compared with the 5.9 billion-rupee median of 12 analyst estimates compiled by Bloomberg.

“Our fourth-quarter results include a one-time non-cash impairment charge of acquisition goodwill, largely relating to the oil and gas business and the Sri Lanka block on account of a steep fall in crude oil prices,” Sesa Chief Executive Officer Tom Albanese said Wednesday in a statement. “This has no impact on the production or future earnings capacity of these assets.”

In 2008, Cairn won a block in the Mannar basin in Sri Lanka for exploration. The offshore block SL 2007-01-001 covers approximately 3,000 square kilometers (1,158 square miles).

Cairn India on April 23 reported a 2.41 billion-rupee fourth-quarter loss. The company also cut its capital expenditure plans for the year ending March 31 to $500 million from $1.2 billion.

In an April 8 report, Halan had said Moody’s expects Asian upstream oil and gas companies to post weaker results for the quarter ended March 31.

“Companies with strong liquidity, exposure to natural gas, and flexibility to reduce production costs will be best- positioned to weather this downcycle,” according to the report.

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net. To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Indranil Ghosh, Abhay Singh