Interim Management Statement

RNS Number : 5830B

Cairn Energy PLC

29 October 2009

 



FOR IMMEDIATE RELEASE

29 October 2009

CAIRN ENERGY PLC ("Cairn")

Interim Management Statement

Cairn Energy PLC is today issuing its Interim Management Statement.

Corporate

• Cairn has agreed to sell to PETRONAS International Corporation Limited (PICL), a 10% interest in its existing 6 operated blocks offshore Greenland, subject to the required Government and partner approvals

• PICL has an option to increase its interest to 20% in any development in these blocks, in return for payment of further consideration to reflect a market valuation of the additional 10% interest at that time

• Cairn and PICL have also agreed to co-operate on an 80/20 basis on any other Open Door or Bid Round initiatives in Greenland

• In addition, PICL has acquired from Cairn 43.6million shares in Cairn India Limited (CIL) representing a 2.30% stake in CIL, taking the total holding of PICL in CIL to 14.94%

• The total consideration payable by PICL in respect of the above transactions is US $310 million*. These funds will be targeted for additional investment in Greenland exploration

Operational

India 

• First oil production commenced from the Mangala field, Rajasthan on 29 August 2009

• 36 Mangala development wells drilled, of which 26 completed to support ramp up production profile; successfully drilled and completed the first horizontal well which tested at a production rate of more than 11,500 barrels of oil per day (bopd)

• Mangala production continues to build according to plan with average gross production of 5,991 bopd to the end of September 2009; currently producing ~10,000 bopd

• GoI has now agreed for private refiners to qualify as additional offtakers of the Rajasthan crude 

• The processed crude is being safely trucked to storage tanks at the coastal port of Kandla and the first cargo was delivered to the Government of India (GoI) nominee, Mangalore Refinery and Petrochemicals Limited (MRPL) on 9 October 2009

• Train two (50,000 bopd capacity) is expected to be ready by early 2010 with the contractors focused on optimising completion

• Construction of Train three (50,000 bopd capacity) is targeted to attain Mangala plateau production of 125,000 bopd in H1 2010

• The Mangala Processing Terminal (MPT) to Salaya pipeline is ~590 km of which 560 km has been laid; hydro testing has started and the section to Radhanpur in Gujarat will be complete by the end of the year 

Greenland

• Sourcing of a drilling rig for Greenland exploration campaign in 2011 is underway

• Well site surveys in Disko blocks have been completed

• Processing of the 2009 2D seismic data from the east and south coast areas is ongoing

• Applied for pre-qualification for the 2010 bid round in Baffin Bay

Group Production

The figures in the table below show group production for Q3 2009 (July to September) on a gross, working interest and entitlement interest basis (including 100% of both CIL and Bangladesh production).

Production (boepd)	Ravva	CB/OS-2	Rajasthan	Sangu	Total
Gross field	42,008	12,480	5,991	7,301	67,780
Working interest	9,452	4,992	4,194	2,738	21,376
Entitlement interest	4,348	3,566	4,580	1,660	14,154

Rajasthan production commenced in August 2009 and represents 33 days.

The average realised price per barrel of oil equivalent for Q3 2009 is $51.48. This excludes Rajasthan production which was not invoiced in the quarter and any revenue adjustments relating to the Ravva arbitration.

Commentary

Finance

In October Cairn agreed a 10% farm out of its six operated Greenland blocks and a sale of 43.6 million shares in Cairn India Limited to PICL for a total consideration of $310m. Together with existing funds these proceeds will be targeted at the exploration position in Greenland.

In addition, Cairn India also agreed a $1.6 billion refinancing with Standard Chartered Bank, the IFC and the State Bank of India. The proceeds from this facility will be used to repay the existing facility of US $850 million and to continue to fund the ongoing projects in Rajasthan.

As at June 2009 the Group had net cash of $630 million.

Cairn has always maintained a capital structure appropriate for its operations in exploration, appraisal and development and these recent transactions have further strengthened the Group's Balance Sheet providing increased financial flexibility to deliver operational goals.

Operational

India

Cairn has commenced production with initial evacuation by trucking from the Mangala field. The Prime Minister of India inaugurated production on 29 August 2009. The first volumes of crude are being processed by the refiner MRPL and further quantities are being prepared for delivery by tanker to MRPL via the port of Kandla in Gujarat. 

Development drilling and well completion activities are currently underway with two drilling rigs and one completion rig operating in the Mangala development area. To date 36 wells have been drilled of which 26 wells have been completed and made ready for initial production. Mangala production continues to build according to plan; currently producing ~10,000 bopd with average gross production of 5,991 bopd to the end of September 2009. The wells drilled to date will support the ramp up production profile for the Mangala field and the first horizontal well has successfully tested at a production rate of more than 11,500 bopd.

The GoI has nominated MRPL, IOC and HPCL for the offtake of initial crude quantities from the Rajasthan Block for the period 2009-10 and 2010-11.  The GoI has agreed for private refiners to qualify as additional offtakers of the Rajasthan crude. Approval has also been granted by the GoI to establish additional/multiple Delivery Points at Radhanpur and Viramgam for sales to IOC's Panipat and Koyali refineries respectively and to establish an additional Delivery Point at Kandla port for delivery of crude to MRPL and other coastal refineries, until the pipeline for transporting crude from Barmer to Bhogat is operational

Construction activities on all the key elements at the MPT to enable production from Trains two and three are progressing and pre-commissioning activities for key elements have commenced. Work on the well pads, the Raageshwari gas terminal, the Thumbli saline aquifer development, in-field pipelines, processing facilities, buildings, power generation and associated utilities are at an advanced stage of completion.

Construction of Train two (50,000 bopd capacity) is expected to be ready by early 2010 while Train three (50,000 bopd capacity) is targeted to attain Mangala plateau production of 125,000 bopd in H1 2010.

Of the total length of the MPT to Bhogat pipeline of ~670 km, the MPT to Salaya section is 590 km of which 560 km has been laid. The in-principle approvals for the Salaya to Bhogat section have been obtained and the necessary land purchase has been completed.

Construction activity is in progress at the Viramgam and Radhanpur Terminal locations and on all the 33 Above Ground Installation stations, the Salaya distribution hub and river crossings. More than 85% of the construction activities have been completed on the route of the pipeline.

Cairn India is at an advanced stage of preparation to conduct an EOR pilot trial in the Mangala field. The current assessment of the EOR resource base is more than 300 mmbbls of incremental recoverable oil from the MBA fields.

There remains a significant and as yet untested prospective resource potential to pursue on the Rajasthan block and Cairn is targeting drilling at least two wells in 2010.

Elsewhere in India, Ravva on 28 October 2009 completed 15 years of continuous operations and has produced more than 225 million barrels of oil equivalent (boe) per day; the current average gross production is 42,008 boe.

CIL has been provisionally awarded KG-OSN-2009/3 and MB-DWN-2009/1 blocks in NELP VIII bidding round; subject to GoI approval.

Greenland

Interpretation of the 2008 seismic is underway and has resulted in an initial inventory of leads and prospects from the Disko west acreage. Acquisition of the 2009 2D seismic across Greenland is complete. Processing is underway of various site surveys, CSEM data and environmental surveys. Planning has commenced for a potential multi-well exploration drilling programme in 2011.

Mediterranean

Planning is underway for a well in Tunisia in 2010 in the Louza block. Processing of a 3D survey in Albania is underway.

Bangladesh

Planning is underway for winter 2009/2010 3D seismic programme on the Magnama and South Sangu discoveries in the Bay of Bengal.

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:

• 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 parts of the business:

• Cairn India limited ("Cairn India") is listed on the Bombay Stock Exchange and the National Stock Exchange of India and has interests in a total of 13 acreage blocks in India and Sri Lanka. Cairn now retains a 62.39 % interest in Cairn India.

• Capricorn Oil Limited ("Capricorn"), a 90% 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.

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

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

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

• Cairn through its subsidiary Capricorn operates six blocks in Greenland. It also has non operated interests in two other blocks.

• *The aggregate consideration of $310 million comprises approximately $240 million for the CIL shares and $70 million for the Greenland position. The proportion of the consideration allocated to CIL shares is calculated by reference to a small discount to the closing price on 12 October 2009 (The Indian markets being closed on 13 October 2009).

• 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. 

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

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

For further information on Cairn see www.cairnenergy.com

 

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