Interim Management Statement

RNS Number : 2378M

Cairn Energy PLC

20 May 2010

 



FOR IMMEDIATE RELEASE                                                                                                   20 May 2010

CAIRN ENERGY PLC ("Cairn")

Interim Management Statement

Cairn Energy PLC is today issuing its Interim Management Statement in accordance with the reporting requirements of the EU Transparency Directive. This statement is issued in advance of Cairn's Annual General meeting which is being held in Edinburgh at 12 noon today, 20 May 2010.

HIGHLIGHTS

In Rajasthan, Processing Trains One and Two at the Mangala Processing Terminal (MPT) are operational and Train Three is due for completion by the end of Q2 2010. The pipeline from the MPT in Rajasthan to Salaya in Gujarat is now complete and hydrocarbons have been introduced into the pipeline in Q2 2010 to facilitate the ramp up of production to 125,000 bopd in H2 2010.

In Greenland preparations for a four well exploration programme offshore west Disko continue with the first well expected to spud early July 2010.  

Operational

India - Rajasthan

Ø Processing Trains One and Two at MPT complete and operational

Ø Train Three at MPT to be ready by end Q2 2010

Ø Spur lines to refineries complete

Ø 590 km pipeline from MPT to Salaya operational in anticipation of sales to refiners by end Q2 2010

Ø Q1 2010 average gross production was 17,532  bopd and current production is ~ 60,000 bopd

Ø Oil sales arrangements in place with four buyers for 143,000 bopd

Ø Mangala production is planned to ramp up to 125,000 bopd during H2 2010

Greenland

Ø Four wells planned this summer in the west Disko offshore Greenland using a dual rig strategy

Ø 8,000 km of 2D seismic acquisition planned for south and west Greenland

Ø Three applications submitted on 1 May 2010 for the Baffin Bay Exploration Bid Round

First Quarter Group Production

Production (boepd)	Ravva	CB/OS-2	Rajasthan	Sangu	Total
Gross field	37,210	14,218	17,532	5,526	74,486
Working interest	8,372	5,687	12,273	2,072	28,404
Entitlement interest	4,773	4,240	13,403	1,234	23,651

The average realised price per barrel of oil equivalent for Q1 2010, adjusted for stock movements, is $62.88. 

COMMENTARY

Finance

The Group continues to focus capital resources to maximise shareholder value and maintain financial and operational flexibility.

At 31 March 2010 Group net cash balances were approximately $460 million.  Cairn India had net debt of $170m, comprising $583m cash and $753m debt.  PLC/Capricorn's net cash balances were $630m.

Cairn India's resources continue to be targeted on delivering the Rajasthan project, where the initial cash flows are being reinvested in the block.  The Group's other financial resources are primarily focussed on the potentially transformational Greenland drilling campaign this summer.

Operational

India

Development - Upstream 

The MPT is designed to process crude from the Mangala, Bhagyam and Aishwariya (MBA) fields and, when complete, will have initial capacity to handle 205,000 bopd of crude with scope for further expansion.

Four MPT Processing Trains will enable Cairn to produce and process the current approved peak plateau production of 175,000 bopd.

Train One, with a capacity to process 30,000 bopd, has been commissioned. Train Two which can handle 50,000 bopd, has also now been commissioned. Both Train One and Two process current Mangala production. Train Three, which can handle 50,000 bopd, will be complete and ready by the end of Q2 2010. Train Four is scheduled to be completed in 2011.

Mangala production will continue to build during the ramp-up phase; Q1 2010 average gross production was 17,532 bopd and current production is ~ 60,000 bopd.

To date, 62 Mangala development wells have been drilled, of which 51 have been completed and made ready for initial production. Six of these were horizontal wells.

Pipeline

The total length of the MPT to Salaya pipeline of 590 k along with spur facilities has now been laid and passes through the states of Rajasthan and Gujarat. Hydrocarbons have been introduced into the pipeline in anticipation of sales to refiners by the end of Q2 2010.

In-principle approvals for the Salaya to Bhogat section of the pipeline have been obtained and the necessary land purchase has been completed. The contracting process is well underway with certain key contracts already placed. Bhogat, which lies on the Gujarat coast, provides further flexibility in respect of future offtake volumes.

At the same time crude oil continues to be evacuated via road trucks to the Gujarat coast for onward transport to MRPL and Reliance Industries Limited (RIL) refineries, using heated crude oil tankers.

Rajasthan - Sales

The initial crude oil sales arrangements to Public Sector Undertakings (MRPL, IOC) have now been supplemented by sales to RIL at Jamnagar and the Essar Group at Vadinar following the decision of the Government of India to allow private refiners to qualify as additional offtakers of the Rajasthan crude.

Sales arrangements are now in place for 143,000 bopd with four refineries. With the completion of the pipeline and related facilities, sales to both public and private refiners are expected to ramp up to 125,000 bopd in H2 2010. Sales to IOC and private refiners through the pipeline are expected in Q2 2010.

To date more than four million barrels of crude from Mangala have been delivered to the refiners.

Commercial terms and pricing have been concluded with all the buyers. This pricing is based on comparable low sulphur crude frequently traded in the region - Bonny Light - with appropriate adjustments for crude quality.

The implied price realisation represents an average 10-15% discount to Brent on the basis of prices prevailing for the 12 months to May 2010. 

Discussions are in progress with a number of refiners both in India and overseas to allocate additional volumes subject to Government of India approval.

Resource Base

Cairn is focused on optimising the basin development and production from the Rajasthan resource base beyond the currently approved level of 175,000 bopd.

The current assessment of the Enhanced Oil Recovery (EOR) resource base is more than 300 mmbbls of incremental recoverable oil from the MBA fields.  The EOR field pilot trials in Mangala have started and are expected to run for up to 24 months.

The Barmer Hill formation which lies above the Fatehgarh Formation reservoir across the basin holds significant potential in tighter reservoir rocks (lower permeabilities). An initial hydraulic frac programme on the Barmer Hill is planned in H2 2010.

Exploration

There remains a significant and as yet untested prospective resource potential to pursue across the Rajasthan Barmer Basin and detailed technical work continues to assess existing and new plays in this asset.

Greenland

West Disko Blocks

Cairn is planning to use two modern drilling rigs to drill up to four exploration wells in west Disko offshore west Greenland in the summer of 2010, subject to government approval. The planned drilling programme targets prospects identified by 2D seismic and various geophysical surveys acquired during 2008 and 2009. Ice monitoring programmes and ice management studies have confirmed an operating window between end June and early December in west Disko.

The west Disko licence blocks (Sigguk and Eqqua) are located more than 200 km from the nearest coastline and cover a total area of 23,815 km².

The 2010 drilling programme is targeting prospects within the Sigguk block and will utilise a dual rig strategy for both safety and operational efficiency reasons.  In an extreme safety case the availability of two rigs under the same operational control in the same area allows for immediate relief well capability.

The first rig the Stena Forth is a 'state-of-the-art' high efficiency, sixth generation dynamically positioned drillship. The second rig, the Stena Don, is a fifth generation dynamically positioned semi-submersible. Both rigs are designed and equipped for working in harsh environments. All four wells are expected to be completed by early October.

A number of operational support vessels will also be mobilised to provide cover for emergency response, rig stand-by, ice management, and re-supply operations.

A 2,000 km 2D seismic survey is planned to be acquired over the Eqqua block during the summer of 2010.

Thirty prospects and leads have so far been identified on the acreage. The four well programme targets a prospective resource of ~1.6 billion of risked gross mean oil in place and ~385 mmbbls of risked resources, (16 billion of unrisked oil in place and 4.1 billion bbls unrisked resources). The initial prospects, which lie in water depths of between 300 and 500 metres, are estimated to have a 7-14% chance of success based on an assessment of basin and individual prospect risks.

Southern Greenland

The acceleration of the exploration programme off the west Greenland coast allows Cairn to plan and focus a potential 2011 exploration drilling programme on the previously unmapped and undrilled basins and sub-basins offshore southern Greenland. A 6,000 km 2D seismic survey and well site surveys will be carried out across these blocks in 2010.

Baffin Bay Bid Round

Cairn recently submitted three applications for blocks in the offshore West Greenland Baffin Bay Exploration Bid Round as part of its strategy to secure further high potential acreage in Greenland.

Mediterranean

A commitment exploration well offshore Tunisia in the Louza Permit has been drilled and abandoned as a dry hole.

The M'Sela West 1 well reached a total depth of 2,555m in the Serdj formation. Although minor evidence of light oil was observed, the expected Isis target reservoir was not developed in the well.  The well has been plugged and abandoned without testing.

Bangladesh

Production and Development

In 2009, the Sangu gas field continued to maintain a good record for safety and low cost production even though production is well into decline. A successful well intervention campaign was also completed in April 2010 and a further campaign, aimed at maintaining and increasing production from the Sangu wells, is planned for Q4 2010. Operating costs are also being further reduced to extend the economic life of the field.

Exploration and Appraisal

Cairn and its JV partner Santos completed a 200 km² 3D survey over the Magnama discovery in Block 16 in May 2010. A second 3D survey, totalling approximately 100 km² was completed over part of the Sangu field and the South Sangu discovery. Both surveys will be used to identify production, appraisal and exploration targets for a possible drilling campaign in late 2010 / early 2011.

Enquiries to:

Cairn Energy PLC Sir Bill Gammell, Chief Executive Dr Mike Watts, Deputy Chief Executive Jann Brown, Finance Director David Nisbet, Corporate Affairs	Tel: [phone]
Brunswick Group LLP Patrick Handley David Litterick	Tel: [phone]

NOTES TO EDITORS:

Ø Cairn Energy PLC ("Cairn") is an Edinburgh-based oil and gas exploration and production company listed on the London Stock Exchange. Following the IPO of Cairn India in January 2007, there are two separate arms to the business:

Ø Cairn India limited ("Cairn India") is now listed on the Bombay Stock Exchange and the National Stock Exchange of India and has interests in a total of 11 acreage blocks in India and Sri Lanka. Cairn currently retains a 62.39% interest in Cairn India.

Ø Capricorn Oil Limited ("Capricorn"), a 100% subsidiary of Cairn, is focused on exploration. Capricorn now has assets in Bangladesh, Nepal, Northern India, Greenland, Tunisia, Albania, and pending licence awards in Spain.

Ø "Cairn" where referred to in this release means Cairn Energy PLC and/or its subsidiaries (including Cairn India and Capricorn), as appropriate.

Ø "Cairn India" where referred to in the release means Cairn India Limited and/or its subsidiaries, as appropriate.

Ø "Capricorn" where referred to in this release means Capricorn Oil Limited and/or its subsidiaries as appropriate.

Ø Cairn has focused its activities on the geographic region of South Asia, which has already resulted in a significant number of oil and gas discoveries.  In particular, Cairn made a major oil discovery (Mangala) in Rajasthan in the north west of India at the beginning of 2004. Cairn has now made more than 20 discoveries in Rajasthan block RJ-ON-90/1.

Ø Cairn India is headquartered in Gurgaon on the outskirts of Delhi, with operational offices in Chennai, Gujarat, Andhra Pradesh and Rajasthan.

Ø Cairn Energy PLC (including Capricorn) is run from Edinburgh with operational offices in Dhaka, Chittagong and Kathmandu.

For further information on Cairn please go to: www.cairnenergy.com

 

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