Operational Update

RNS Number : 4530M

Cairn Energy PLC

29 January 2009

 



FOR IMMEDIATE RELEASE

29 January 2009

CAIRN ENERGY PLC 

OPERATIONAL UPDATE 

Cairn intends to announce its preliminary results for the year to 31 December 2008 on 31 March 2009. In advance of these results, Cairn is providing information on recent operations and guidance in respect of the Group's trading performance in 2008. This information is unaudited and is subject to further review. 

HIGHLIGHTS

Operational

• Gross operated production for 2008, 76,298 barrels of oil equivalent per day (boepd) (2007: 87,031 boepd)

• Average net entitlement production, 12,801  boepd (2007: 19,809 boepd)

• Average price realised per boe, S$63.72 (2007: S$39.70)

Cairn India - Rajasthan Block RJ-ON-90/1

• Phased Mangala, Bhagyam and Aishwariya (MBA) development project on track and funded to deliver first oil from the core Mangala development in H2 2009

• Construction of Mangala Processing Terminal (MPT) underway with four processing trains planned targeting a capacity of 205,000 barrels of oil per day (bopd) with scope for expansion

• Mangala production Q3 2009 via train 1 (30,000 bopd capacity) initial export by trucking

• Additional Mangala production through train 2 (50,000 bopd capacity) to commence in Q4 2009, export by pipeline

• Mangala production scheduled to reach 125,000 bopd plateau after train 3 (50,000 bopd capacity) commences H1 2010

• Rajasthan plateau production of 175,000 bopd with a fourth 75,000 bopd capacity train, to commence in 2011

• Aishwariya production potential upgraded from 10,000 bopd to 20,000 bopd, subject to regulatory approval

• Further 800 km2 appraisal and development acreage secured under long term contract

• Raageshwari East well, 90 km south of Mangala, tested 500 bopd

Capricorn

• Two new blocks acquired in southern Greenland

• Greenland - processing of 10,000 line km 2D seismic underway

Sir Bill Gammell, Chief Executive said:  

'Construction of the various upstream and midstream elements of the Rajasthan development project is well underway with almost 10,000 workers actively involved in the current operations. 

We will commence production in 2009 and Cairn is funded to meet this target.

In Greenland we are enthusiastic about the frontier exploration position that we are building and are pleased to have completed the entire first term work obligations over all of our operated blocks.'   

Enquiries to:

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

These materials contain forward-looking statements regarding Cairn, our corporate plans, future financial condition, future results of operations, future business plans and strategies. All such forward-looking statements are based on our management's assumptions and beliefs in the light of information available to them at this time. These forward-looking statements are, by their nature, subject to significant risks and uncertainties and actual results, performance and achievements may be materially different from those expressed in such statements. Factors that may cause actual results, performance or achievements to differ from expectations include, but are not limited to, regulatory changes, future levels of industry product supply, demand and pricing, weather and weather related impacts, wars and acts of terrorism, development and use of technology, acts of competitors and other changes to business conditions. Cairn undertakes no obligation to revise any such forward-looking statements to reflect any changes in Cairn's expectations with regard thereto or any change in circumstances or events after the date hereof.

Forthcoming India Site Visit 1 - 4 February 2009

Cairn India is hosting a visit to India and the Rajasthan Block RJ-ON-90/1 for analysts and investors from 1 - 4 February 2009.  

The presentation and a video recording of the presentation will be available on 4 February 2009 at www.cairn-energy.plc.uk in the downloads section of the Investor Relations page. No further trading or operational updates will be given during the visit.

GROUP PRODUCTION

The Group's average entitlement production for 2008 was 12,801 boepd net to Cairn compared to 19,809 boepd for 2007.

The figures in the table below show group production for 2008 on a gross, working interest and entitlement interest basis (including 100% of Cairn India's production).

Production (boepd)	Ravva	CB/OS-2	Sangu	Total
Gross field	53,809	13,778	8,711	76,298
Working interest	12,107	5,511	3,267	20,885
Entitlement interest	5,711	4,478	2,612	12,801

The average realised price per barrel of oil equivalent for 2008 was $63.72 compared to $39.70 in 2007. Cairn's current entitlement interest production is 46% gas: 54% oil. On commencement of oil production from Rajasthan the vast majority of the Group's production will be oil.

Group Net Cash

Group net cash at 31st December 2008 was approximately $896 million (including 100% of Cairn India's net cash balances; $606 million and 100% of Capricorn's net cash balances of $290 million).

Cairn India has currently drawn $640 million of its $850 million facility with a consortium of international banks.  This facility is currently available for drawdown and has a phased repayment schedule which does not start until July 2010. On the basis of the phased approach to the Rajasthan project outlined above, the existing facility, together with the Group's cash resources, provides sufficient funding to complete the core Mangala development in 2009. Cairn continues to monitor the credit markets to assess current pricing and may consider expanding its facilities in due course. 

The current schedule targets the cash resources of the Group on this project and once Mangala is on stream it will generate revenues that will be used initially to deliver further value from Rajasthan and give the Group additional financial and operational flexibility.

CAIRN INDIA

Rajasthan (Block RJ-ON-90/1) (Cairn India 70% (Operator); ONGC 30%)

Development - Upstream  

Good progress is being made in the development of the MPT to which the bulk of the other field facilities will be connected. 6,000 workers are currently involved in upstream construction activities in Rajasthan.

The overall development includes the construction of four planned processing trains targeting a capacity of 205,000 bopd with scope for expansion:

• Mangala Q3 2009 via train 1 (30,000 bopd capacity) initial export by trucking

• Additional Mangala production through train 2 (50,000 bopd capacity) to commence in Q4 2009, export by pipeline

• Mangala production scheduled to reach 125,000 bopd plateau after train 3 (50,000 bopd capacity) commences H1 2010

• Rajasthan plateau production of 175,000 bopd with a fourth 75,000 bopd capacity train, to commence in 2011

The well pads to enable first production have been completed. The multi purpose mobile drilling rig is on the Mangala site to commence drilling the first of at least 300 development wells.

The Front End Engineering Design (FEED) for Bhagyam has been completed. The Aishwariya stock tank oil initially in place (STOIIP) has increased to 290 million barrels (mmbbls). Based on previous estimates of recovery factors, the increased reserves would now be 64 million boe and this could support a plateau production of 20,000 bopd compared to the 10,000 bopd plan approved in June 2006. These estimates are subject to regulatory and partner approvals and the implementation of a revised Field Development Plan (FDP).

Development - Midstream - (Cairn India 70% (Operator) ONGC 30%)

Construction of the 600 km insulated and heated pipeline is well underway with more than four thousand personnel involved on the building of all of the facilities including the terminals.

Obtaining access to the land on which the pipeline will be built is nearing completion under the Rights of Use (RoU) process in Gujarat and Rajasthan with final approval expected in Q1 2009. The land for all the above ground installations has been acquired and construction at these locations has commenced. 

The proposed routing of the pipeline will allow access to an extensive existing pipeline infrastructure and refinery network, with a final coastal delivery point that also affords access to the majority of India's refining capacity. 

Rajasthan - Sales 

Prior to first production via the pipeline the crude from the first train at the MPT will be trucked to the Gujarat coast. The Government of India (GoI) has nominated MRPL as purchaser of the crude and is in the process of confirming additional nominees.

Kameshwari Development Area (Cairn India 100%) 

The GoI has approved a further Declaration of Commerciality (DoC) on the Rajasthan licence

RJ-ON-90/1 in North West India.

The DoC for the three discoveries made in Kameshwari West 2, 3 and 6 has been approved, along with the new Development Area of 822 km2 which was part of the Northern Appraisal Area.

The Kameshwari West 2 and 3 discoveries have opened up a new play in the Barmer Hill/Lower Dharvi Dungar sands on the western margin of the Rajasthan basin.

Cairn and its joint venture (JV) partner ONGC now have 3,111 km2 under long term contract on the Rajasthan licence of which the main Mangala FDP covers 1,859 km2, while the Bhagyam FDP covers 430 km2. 

Enhanced Oil Recovery (EOR)

Cairn continues to focus on the staged and early application of aqueous-based chemical flooding EOR techniques for the Northern Fields. Early application of EOR in these fields would be designed to extend their crude oil production plateau periods, reduce water production, mitigate future decline rates and potentially accelerate crude oil production. 

The first phase of laboratory studies for the Mangala field was successfully concluded in January 2007. A pilot for polymer and alkaline surfactant polymer (ASP) flooding for the Mangala field has been proposed in the Mangala FDP revision. Further analysis carried out by an independent laboratory also indicates the significant potential to increase the ultimate recovery from the MBA fields through the implementation of chemical flooding. The planning to conduct the EOR pilot is currently in progress. 

The current assessment of the EOR resource base is more than 300 mmbbls of incremental recoverable oil from Mangala, Bhagyam and Aishwariya. If the Mangala field pilot is successful it is envisaged that EOR could be introduced at a field scale in Rajasthan in 2013 or even earlier, commencing in Mangala, and that an increase in plateau offtake will be considered on a field by field basis.

Cairn India - Exploration Overview 

In 2008 Cairn India participated in seven wells, four of which were operated by Cairn India. Three of these wells were still operating at the end of the year. Three of the operated wells were successful:

• The RB-4 well in Ravva encountered additional oil sands that were later put on stream at 500 bopd through the Ravva production facilities.
• In Rajasthan (RJ-ON-90/1) Raageshwari East -1 flowed 500 bopd and 0.4 mmscfd on test from Thumbli sands in a separate oil accumulation adjacent to the Raageshwari Field.
• The Mangala North-1 well extended the contingent resource in the Barmer Hill Formation for the Mangala Field. 

Working interest Proven and Probable Contingent resource additions for the year (unaudited) comprise 118% of working interest production. Dry wells were drilled in CB-ONN-2007/1, GV-ONN-2002/1 and GV-ONN-97/1.

Onshore seismic acquisition which commenced at the beginning of the year with 2D and 3D acquisition in the KG-ONN-2003/1 block continued at the end of the year in the GV-ONN-2003/1 block with the VN-ONN-2003/1 2D seismic acquisition also completed. A marine 2D seismic survey was also completed in 2008. These surveys will help define drilling opportunities in 2009 and 2010. 

The Government of Sri Lanka has awarded an exploration licence to Cairn India to explore for oil and natural gas in the Mannar Basin. The block covers approximately 3,000 km2   in water depths of 200 metres to 1,800 metres. 

Cairn India - Producing Assets

Cambay Basin - Western India 

Block CB/OS-2: (Cairn India 40% (Operator)) 

Average gross production from Block CB/OS-2 for Q4 2008 was 13,799 boepd (comprising average gas production of 33.3 mmscfd and average oil/condensate production of 8,254 bopd). 

Oil production has been increased from the new wells that were added during the 2008 infill development drilling campaign.

Krishna-Godavari Basin - Eastern India 

Ravva (Cairn India 22.5% (Operator) 

Average gross production from the Ravva field for Q4 2008 was 49,205 boepd (comprising average oil production of 38,345 bopd and average gas production of 65.2 mmscfd). 

Production at Ravva is being sustained with the contribution from new wells and successful workovers that were conducted in the 2008 drilling campaign. Further studies are continuing to identify additional in place reserves within the field.

Three new infield subsea pipelines have been installed to overcome pipeline capacity bottlenecks. The commissioning of these pipelines is planned in Q1 2009, to aid production from the field.

 CAPRICORN

GREENLAND

Capricorn has acquired a leading acreage position offshore West and Southern Greenland.

During 2008, Capricorn completed its obligation seismic work programme for the first licence phase over all its licences.  A 6,600 km 2D seismic survey was acquired in the Disko West blocks Sigguk and Eqqua, followed by the acquisition of a further 1,200 km 2D seismic survey in the southern Kingittoq and Saqqamuit blocks and around 1,780 km of 2D seismic data over the Salliit and Uummannarsuaq blocks (Cape Farewell 1 & 2). Processing of all the collected data is ongoing.

A Controlled Source Electromagnetic Survey (CESM) was acquired in 2008 over the Lady Franklin and Atammik blocks operated by EnCana and the data is currently being processed.  

Additional surveys are being planned for the 2009 operational season. 

BANGLADESH

Production and Development

In 2008, the Sangu gas field passed a landmark of ten years on production. The field is now in decline and during the year, Cairn and its JV partners successfully completed a third well intervention programme and committed to a compression project which will be implemented in 2009.  Both measures will help to increase and extend production.

The third well intervention programme was carried out on wells 1 and 9 in the Sangu field.  The programme has resulted in a 60% improvement in production, successfully increasing Sangu total production in the near term to above 60 mmscfd. 

The JV partners in the Sangu field are Cairn, Santos and HBR Energy.

Exploration

Following the drilling campaign at Magnama and Hatia earlier in 2008, there have been no further operations and work has focused on optimising future appraisal work.

NEPAL

The security situation in Nepal continues to be monitored closely. Contractual force majeure remains in place in Capricorn's acreage in Nepal, precluding in-country operations.  As soon as the security situation permits, further fieldwork will be carried out ahead of final planning for remote sensing and seismic field operations.  

OTHER ASSETS 

(Tunisia, Albania, Sicily, Australia, Peru, Spain, Papua New Guinea)

In the Mediterranean, site surveys have been carried out in Tunisia for exploration well locations in both the Louza and Nabeul permits.  

An environmental impact assessment is presently underway offshore Albania ahead of the expected award of an obligation 3D seismic survey.  

Licence applications offshore Spain and Sicily remain pending.  As a result of an ongoing rationalisation programme, the exploration permits inherited from Plectrum in Australia (Bremer Basin), Peru and The Shetlands have been either transferred or relinquished.  

In Papua New Guinea the operator (Talisman) has recently completed a 3D seismic survey over the undeveloped Pandora gas field.

GLOSSARY OF TERMS 

The following are the main terms and abbreviations used in this announcement:

Corporate

Board	the Board of Directors of Cairn Energy PLC
Cairn	Cairn Energy PLC and/or its subsidiaries as appropriate
Cairn India	Cairn India Limited and/or its subsidiaries as appropriate
Capricorn	Capricorn Oil Limited
Company	Cairn Energy PLC
DoC	Declaration of Commerciality
JV	Joint Venture
MBA	Mangala, Bhagyam and Aishwariya
MPT	Mangala Processing Terminal
MRPL	Mangalore Refinery and Petrochemicals Limited, (subsidiary of ONGC)
E&P	exploration and production
GoI	Government of India
Group	the Company and its subsidiaries
ONGC	Oil and Natural Gas Corporation Ltd

Technical

2P	proven plus probable
3P	proven plus probable and possible
2D/3D	two dimensional/three dimensional
ASP	alkaline surfactant polymer
boe	barrel(s) of oil equivalent
boepd	barrels of oil equivalent per day
bopd	barrels of oil per day
bscf	billion standard cubic feet of gas
EOR	enhanced oil recovery
FDP	field development plan
FEED	front end engineering and design
mmboe	million barrels of oil equivalent
mmbls	million barrels of oil
mmscfd	million standard cubic feet of gas per day
PSC	production sharing contract
STOIPP	stock tank oil initially in place

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 arms to the business:

• Cairn India limited ('Cairn India') is now an autonomous business listed on the Bombay Stock Exchange and the National Stock Exchange of India and has interests in a total of 14 acreage blocks in India and Sri Lanka. Cairn currently retains a 65% interest in Cairn India.

• Capricorn Oil Limited ('Capricorn'), a 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 and Sicily.

• '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 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 and Kathmandu.

For further information on Cairn see www.cairn-energy.plc.uk 

 

END

 

 

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