“If you love something, set it free,” is a cheesy line beloved of singers, poster artists and greetings card scribes. Cairn Energy can now be added to that bunch. The UK oil and gas exploration and production company intends to hive off and float part of its core Indian business.

Recent rumblings from Oil and Natural Gas Corp, Cairn’s Indian partner, have re-emphasised the company’s strategic dilemma. Having increased more than five-fold since the giant Rajasthan discovery in 2004, where does Cairn’s share price go from here? Exploration success provides fantastic leverage when you’re a minnow. With production in Rajasthan due to start in 2008, however, Cairn is becoming more of a play on the oil price just as the latter is expected to decrease. For any E&P executive, Rajasthan is an asset easy to fall in love with. But Cairn needs to cash in and get back to its roots.

Selling Rajasthan to an integrated oil major would be the natural exit route. Unfortunately, ONGC is both the obvious buyer and the least likely to pay a strategic premium. Cairn’s elevated share price deters other potential bidders.

A listing raises risks of its own, not least the fact that initial public offerings usually demand a discount. Doing it in Mumbai may mitigate that, with the Indian business potentially commanding a scarcity premium in a fast-growing market. Pearl Energy, another Asian E&P company, has almost tripled in value since listing in Singapore last April. Of course, even hot equity markets such as India’s can go cold.

Investors still banking on a trade sale might take comfort in the potential transaction’s timetable of up to two years. That buys some time for Cairn to continue increasing its commercial reserves in the hope of attracting a rich international suitor.

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