Interim Management Statement

RNS Number : 5449Q

Cairn Energy PLC

20 October 2011

 



FOR IMMEDIATE RELEASE                                                                                             20 October 2011

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.

HIGHLIGHTS

Ø Completion of the sale of Cairn's 40% shareholding in Cairn India to Vedanta is expected shortly.  Following completion, Cairn's residual holding in Cairn India Limited (CIL) will be approximately 22%

Ø As previously announced, Cairn expects to return a substantial proportion of the proceeds from the sale to shareholders

OPERATIONAL

South Asia

Ø Mangala currently producing at 125,000 barrels of oil per day (bopd); reservoir performance as per expectations, with potential to produce 150,000 bopd subject to Joint Venture (JV) partner and Government of India (GoI) approval

Ø Bhagyam development ready to commence production end of Q4 2011, subject to GoI approval

Ø Expect production rate of 175,000 bopd in Q1 2012 with active support from JV partner ONGC and GoI

Ø Development of Aishwariya field underway; plan to commence production in H2 2012, subject to JV and GoI approval

Ø CIL is increasingly confident of delivering a significant part of the currently envisaged basin potential of 240,000 bopd from the Mangala, Bhagyam and Aishwariya (MBA) fields alone

Ø Mangala Enhanced Oil Recovery (EOR) pilot progressing well; polymer injection started in August 2011

Ø Frontier exploration gas discovery in the first of up to three wells to be drilled in Sri Lanka

Greenland

Ø Drilling continues in the Atammik block on the last two wells of the 2011 five well drilling programme offshore Greenland

Ø Cairn has recently completed a 3D seismic programme in its Pitu block offshore Greenland

Third Quarter Group Production

Production (boepd)	Ravva	CB/OS-2	Rajasthan	Total
Gross field	36,185	8,508	125,251	169,944
Working interest	8,142	3,403	87,676	99,221
Entitlement interest	4,069	1,877	40,669	46,615

The average realised price per barrel of oil equivalent for Q3 2011, adjusted for stock movements, is US $101.9. 

COMMENTARY

Finance

At 30 September 2011, Cairn continued to classify the assets of the Cairn India Group as held-for-sale pending completion of the final 30% tranche of Cairn India shares to Vedanta.  No gain on sale was recognised on completion of the initial 10% tranche in July.

The remaining Cairn Group continues to focus on the final two wells of the current Greenland drilling campaign.  Following results of the three Greenland wells drilled this year, unsuccessful drilling costs total US $573 million at 30 September 2011. These unsuccessful costs include the Alpha well carried over from last year and the Lady Franklin, Delta and Gamma wells from the 2011 exploration programme. Following receipt of the proceeds from the initial 10% tranche of Cairn India shares to Vedanta, the ongoing programme offshore Greenland and the repayment of the US $200 million debt that had been drawn from the Group's US $900 million stand-by secured revolving credit facility, PLC/Capricorn's cash balance at 30 September 2011 was US $1,010 million.

Corporate

Completion of the sale of Cairn's 40% shareholding in CIL to Vedanta is expected shortly.

In July 2011, Cairn completed the first 10% tranche of the 40% sale of CIL shares to Vedanta for net proceeds of approximately US $1,362 million in cash.

Following completion of the second, 30% tranche of CIL shares, Cairn will retain an approximate 22% shareholding in the Indian business.

As per the GoI letter dated 26 July, 2011, the transaction has been approved by the GoI subject to certain conditions. The conditions imposed by the GoI include that in respect of the RJ-ON-90/1 block, the Company must agree that the royalty payable under the Production Sharing Contract (PSC) is a contract cost eligible for cost recovery and that it shall withdraw the arbitration with respect to payment of cess.

The acceptance of these conditions was approved by CIL shareholders with an overwhelming majority vote of 97.29% of the votes received through the postal ballot. The CIL Board of Directors has accepted the mandate of the shareholders following the declaration of the postal ballot results on 14 September 2011.

In line with GoI conditions to the transaction, CIL's JV partner, ONGC, in their Press Release dated 27 September 2011, announced that it had decided to issue a No Objection Certificate (NOC) in respect of the proposed transaction, subject to Cairn, Vedanta and their affiliates executing a formal agreement with ONGC, agreeing to the royalty and cess conditions.

Operational

Cairn India

The Mangala field continues to produce at the currently approved plateau of 125,000 bopd, demonstrating the sound reservoir management practices applied by CIL. Since production start-up in August 2009, the Mangala Processing Terminal (MPT) has processed more than 60 million barrels (mmbbls) of crude oil, which has been sold to Public Sector Undertaking (PSU) and private refiners. The plant uptime stood at 100% during the last quarter.

Production from the Saraswati oil field, which commenced in May 2011, continues at the rate of 250 bopd and the oil is being trucked to the MPT for sale through the pipeline.

CIL is committed to maintaining the highest Health, Safety, Environment and Assurance standards and will continue to focus on maintaining a safe culture of working in all its activities. As of September 2011, the Rajasthan Operation has achieved more than 4.67 million man-hours without any lost time injury (LTI).

Rajasthan Project Development

Development drilling and well completion activities continue to progress well. A total of 148 Mangala development wells have been drilled, of which 81 wells are currently producing and 29 injector wells are injecting water into the reservoirs. The other wells will be brought on-stream in a staged manner. The focused effort on drilling of high capacity horizontal wells in the Mangala field with the excellent reservoir performance supports higher plateau levels.

Work on the development of the Bhagyam field, the second largest discovery in Rajasthan, is ongoing. A total of 47 Bhagyam development wells have been drilled to date. Well results from the Bhagyam development drilling have been as per expectations.

Subject to GoI approval the second largest field Bhagyam is expected to commence production in Q4 2011. The reservoir and facilities will require some time for gradual and safe ramp up to reach the currently approved plateau of 40,000 bopd.

The currently envisaged basin potential stands at 240,000 bopd (equivalent to a contribution of approximately 30% of India's total domestic current crude production). Following a review of reservoir performance at Mangala, development drilling results from Bhagyam and a re-evaluation of the resource base in Aishwariya, CIL is confident of delivering a significant part of the currently envisaged basin potential from the MBA fields. Field Development Plan (FDP) revisions for the three fields are being prepared in conjunction with ONGC and will be submitted for regulatory approval in due course. In addition, CIL believes there is a significant undeveloped and unexplored potential in the Barmer Basin, in Rajasthan.

Development work is currently underway in the Aishwariya field, and production is expected to commence in H2 2012, subject to JV partner and GoI approval.

CIL Exploration

Cairn Lanka, a wholly owned subsidiary of CIL, has notified the appropriate authorities in the Government of Sri Lanka of a gas discovery in the CLPL-Dorado-91H/1z well, drilled in a water depth of 1,354 metres (m), located in the SL 2007-01-001 block, Mannar Basin, Sri Lanka.

A gross 25m hydrocarbon column in a sandstone sequence, between measured depths of 3,043.8-3,068.7m, has been interpreted from wireline log and Modular Dynamic Tester (MDT) data to be predominantly gas bearing with some additional liquid hydrocarbon potential. Further drilling is required to establish the commerciality of the discovery.

The CLPL-Dorado-91H/1z well is the first exploration well to be drilled in Sri Lanka in 30 years and also the first with a hydrocarbon discovery.

The second well, in the three well programme, CLPL-Barracuda-1G/1 spudded on 4 October, 2011.

An update on the well results will be provided at the end of the programme, which is expected to complete by early 2012.

Greenland

The Group's strong financial position and entrepreneurial exploration focus has allowed it to build a strategic and leading early entry position in multiple frontier basins offshore Greenland, a country which Cairn believes has the necessary geological ingredients for exploration success. Cairn currently operates 11 blocks, with a combined area of 102,000km², which is equivalent to 15 quadrants or 450 blocks in the UK North Sea.

Cairn remains encouraged by the prospects and opportunities presented by exploration offshore Greenland. Having drilled six of the twelve wells drilled offshore Greenland to date, Cairn's multi-year, multi-basin campaign in this frontier location ensures that Cairn has a considerable amount of exclusive data and knowledge which Cairn is building upon every day as the programme continues. Cairn continues to approach the campaign with a focus on safety, in terms of people, the environment and equipment. 

AT7-1 Well: Atammik Block, South Ungava Area

The Leiv Eiriksson is drilling the AT7-1 well in the Atammik block, located in 909m of water and 198km offshore Nuuk. 

AT2-1 Well: Atammik Block, South Ungava Area

The Ocean Rig Corcovado is drilling the AT2-1 well, located in a water depth of 1,045m and approximately 198km offshore Nuuk, as a fifth well in the 2011 exploration drilling campaign.  

LF7-1 Well: Lady Franklin Block, South Ungavva Area

As announced in August, the LF7-1 exploration well, located in 1,002m of water approximately 300km offshore Nuuk, reached total depth (TD) and was plugged and abandoned in August. The well encountered a thick Upper Cretaceous section with tight (cemented) sandstones although the anticipated stratigraphically deeper reservoir section was absent at this location. Initial geochemical analysis of the background gas composition indicates the presence of pre-Tertiary oil prone source rocks in the basin.

Gamma-1 Well: Eqqua Block, West Disko Area

As announced in September, the Gamma-1 exploration well, drilled by the Ocean Rig Corcovado, located in 1,520m of water and 294km from Aasiaat, in the Eqqua Block in the West Disko area was plugged and abandoned in September. The well had been targeted to test a deep water Tertiary basin floor fan located 100km down dip from the T8-1 well where biogenic and thermogenic gas had been encountered in 2010.

The Gamma-1 well intersected the prognosed basin floor fan at the anticipated depth, although no reservoir or hydrocarbon shows were encountered in the interval.

Delta-1 Well: Napariaq Block, West Disko Area

Also as announced in September, the Delta-1 exploration well, drilled by the Leiv Eiriksson semi-submersible drilling rig, located in a water depth of 293m and approximately 365km offshore Aasiaat, in the Napariaq Block was plugged and abandoned in September.  The Delta-1 well, which was targeting the Cretaceous Section beneath the Tertiary volcanics, reached TD at 2,977m, still within Tertiary volcanics, without encountering hydrocarbon shows.

Pitu block

The 3D seismic campaign of 1,740 km² in this block is complete.

Southern Greenland

The 3D seismic campaign of 1,499 km² in this area has been completed.

Spain

Cairn is in the very early stages of the exploration process on five contiguous offshore blocks in the Gulf of Valencia area and, during the initial two year period, will be evaluating and consolidating existing data, as a result of which the Company will consider implementing offshore research in the second discretionary phase.  The Company has recently opened an operational office in Madrid to oversee this exploration activity.

New Opportunities

Cairn continues to review opportunities that may fit with its aim of offering shareholders transformational exploration growth potential within a balanced portfolio.

Enquiries to:

Analysts / Investors Simon Thomson, Chief Executive Mike Watts, Deputy Chief Executive Jann Brown, Managing Director and CFO David Nisbet, Corporate Affairs                                                                Tel: [phone] Media Patrick Handley, David Litterick Brunswick Group LLP                                                                             Tel: [phone]

NOTES TO EDITORS

Cairn Energy PLC

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 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 11 acreage blocks in India and Sri Lanka. Cairn retains a 52.11% interest in Cairn India (on an un-diluted basis).

·      Capricorn Oil Limited ("Capricorn"), a subsidiary of Cairn is focused on exploration. Capricorn has assets in, Nepal, Greenland, Albania and 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 "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. Production from Rajasthan started in August 2009 and is expected to reach the approved plateau of 175,000 bopd.

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

Cairn in Greenland

Ø Cairn through its subsidiary, Capricorn, operates 11 blocks offshore Greenland.

Ø Cairn is drilling five wells offshore Greenland during 2011.  Two state-of-the-art rigs are being used for the drilling and exploration programme - the Ocean Rig Corcovado, a sixth generation drill-ship, and the Leiv Eiriksson, a fifth generation semi-submersible.

Ø Up to fourteen vessels are supporting the drilling programme.  They provide cover for emergency response, rig stand-by, ice management, anchor handling, oil spill response and re-supply operations.

Ø Cairn has carried out extensive Environmental and Social Impact Assessments to identify how potential environmental and social impacts of the drilling programme can be avoided or mitigated. 

Ø Only twelve exploration wells have been drilled in offshore Greenland to date, five of which were drilled in the 1970s, one in 2000, three in 2010 by Cairn Energy and three to date by Cairn Energy in 2011.

For further information on Cairn see www.cairnenergy.com

 

END

 

 

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