Operational Update

RNS Number : 2683G

Cairn Energy PLC

28 January 2010

 



FOR IMMEDIATE RELEASE

28 January 2010

CAIRN ENERGY PLC ("Cairn")

Operational Update

Cairn intends to announce its preliminary results for the year to 31 December 2009 on Tuesday 23 March 2010.  In advance of these results, Cairn is providing information on recent operations and guidance in respect of the Group's trading performance in 2009.  This information is unaudited and is subject to further review.

India 

• Mangala average gross production 15,430 barrels of oil per day (bopd) Q4 2009; currently producing ~20,000 bopd and more than 1.5 million barrels (mmbbls) produced since field start-up in August 2009 through Train One

• Construction of processing Trains Two and Three at the Mangala Processing Terminal (MPT) is targeted to attain capacity of 125,000 bopd by end of H1 2010

• The entire pipeline section from MPT to Salaya has been laid and commissioning is in progress

• Work ongoing to align near term sales volumes with production capacity; discussions continue with the Government of India (GoI) and buyers to optimise offtake during production ramp-up

• Mangala development drilling on schedule with 45 development wells drilled to date of which 33 have been completed as producers to support ramp-up; well results confirm the excellent quality, extent and high deliverability potential of the Fatehgarh oil reservoirs

• Eight Raageshwari Deep gas wells successfully drilled to ensure gas supply to fuel MPT steam turbine generators and heat the crude pipeline; one well successfully hydro-fracced and tested to a gas rate of 15.7 mmscfd (million standard cubic feet of gas per day), the highest ever recorded in the field

• Initial crude oil sales to Public Sector Undertakings (MRPL, IOC) now supplemented by sales to Reliance Industries Limited (RIL) at Jamnagar following the decision of the GoI to allow private refiners to qualify as additional offtakers of the Rajasthan crude

Greenland

• Well site surveys in West Disko and geophysical surveys in West Disko, Southern and Eastern Greenland acquired

• Two ultra modern offshore drilling rigs secured for a summer 2010 multi-well exploration programme around West Disko 

• Final processed results of 2009 2D seismic surveys expected March 2010

• Preparations for summer 2010 2D seismic and well site surveys underway

• Pre-qualified as an Operator for the 2010 exploration Bid Round in Baffin Bay; bids to be submitted by 1 May 2010

• Petronas transaction brings an internationally focused National Oil Company (NOC) into all of Cairn's existing operated blocks as a 10% partner; in the event of success Petronas can elect to increase its stake in any discovery to 20% on a market value basis

• Dyas's Capricorn interest exchanged for Cairn shares and direct licence interests in Tunisia and Albania; Capricorn is now a 100% subsidiary of Cairn

Mediterranean 

• Exploration well on the Louza permit Tunisia planned for H1 2010

• Results of 2009 3D seismic survey on Joni permit in Albania are encouraging; an exploration well is planned for early 2011

Finance

• Group cash balances of approximately $1.2bn

• PLC/Capricorn net cash of $594m with a further $64m to be received in 2010 following the Petronas farm-in to Greenland

• CIL net debt of $94m and following the $1.6bn refinancing during the year, CIL has committed undrawn loan facilities of $923m

Sir Bill Gammell, Chief Executive said:

"The delivery of the Rajasthan project with its significant long term production potential underpins the growth strategy of Cairn.

I am delighted that we plan to commence our multi-well exploration campaign in West Greenland during the summer of 2010.  I also look forward to continuing our exploration drilling activities across other highly prospective parts of Greenland in subsequent years."

Group Production

The figures in the table below show group production for 2009 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	43,224	13,158	12,938	7,902	77,222
Working interest	9,725	5,263	9,057	2,963	27,008
Entitlement interest	4,537	3,818	9,891	2,061	20,307

Rajasthan production commenced in August 2009 and represents 125 days.  All other production figures are given for the full calendar year.

The average realised price per barrel of oil equivalent (boe) for 2009 is $50.02.  This excludes any revenue adjustments relating to the Ravva arbitration.

Finance

Following several corporate transactions during the year, including a 5% placing of Cairn shares, a new $1.6 billion debt facility entered into with a group of Indian and international banks and the sale of 43.6 million CIL shares (representing 2.3%) to Petronas, the Group enters 2010 with a strengthened Balance Sheet and a capital structure appropriate for its operations.

At 31 December 2009 Group net cash balances were approximately $500 million. CIL had net debt of $94 million and undrawn loan facilities of $923 million (translated at a rate of INR 46.4 to $1).  PLC/Capricorn's net cash balances were $594 million.  A further $64 million is due from Petronas on final completion of their 10% farm-in to our Greenland acreage.

CIL's resources continue to be targeted on delivering the Rajasthan project with initial cash flows to be reinvested in the block.  The Group's enhanced financial strength has enabled us to accelerate our exploration programme in Greenland where we have secured two rigs to commence drilling this summer, a year ahead of the original target.

Operational

India

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

Four MPT processing Trains are being built to ensure that Cairn is able to produce and process the presently approved peak plateau production of 175,000 bopd. 

Train 1, with a capacity to process 30,000 bopd, has been commissioned and handles current Managala production. The crude oil is being evacuated via road trucks to the Gujarat coast for onward transport to MRPL and RIL refineries, using heated crude oil tankers. 

Mangala production will continue to build during the ramp-up phase; Q4 2009 average gross production was 15,430 bopd and current production is ~20,000 bopd.

All equipment for Train 2 (capacity of 50,000 bopd) has been erected and pre-commissioning activities are underway. Construction of Train 3 (50,000 bopd capacity) is ongoing. Trains 2 and 3 combined are targeting a capacity of 125,000 bopd at the MPT by the end of H1 2010.

Construction of the Raageshwari gas Terminal and the Thumbli water field (saline aquifer) have been completed. Work on the well pads, in-field pipelines, processing facilities, buildings, power generation and associated utilities is at an advanced stage of completion. 

Development drilling and well completion activities are currently underway with two drilling rigs and one completion rig operating in the Mangala development area. A third drilling rig will commence drilling operations in Rajasthan in Q1 2010. To date 45 development wells have been drilled of which 33 have been completed and made ready for initial production. 

Cairn has now successfully drilled and completed three horizontal Managala wells. Five wells are currently producing and the results from all the wells drilled to date confirm the excellent reservoir quality, the lateral extent and the high deliverability potential of the Fatehgarh reservoirs. 

A successful hydro-fraccing campaign in three Raageshwari Deep gas wells was carried out across ten gas zones. After treatment the first well test in Raag-14 proved a gas rate of 15.7 mmscfd, the highest ever in the field. This significant encouragement at Raageshwari indicates the potential for improved frac designs which could be applied to the low permeability reservoir zones of the Barmer Hill Formation in the near future.

Development - Midstream (Pipeline) 

The total length of the MPT to Salaya pipeline of 590 km, which passes through the states of Rajasthan and Gujarat, has now been laid. Hydro-testing is in progress to facilitate completion and commissioning of the pipeline. Work is ongoing to align near term sales volumes with production capacity and discussions continue with the GoI and buyers to optimise offtake during the production ramp-up.

In-principle approvals for the additional pipeline section from Salaya to Bhogat have been obtained and the necessary land purchase has been completed.  Bhogat lies on the Gujarat coast and provides further flexibility in respect of future offtake volumes.

Crude - Sales

The GoI has nominated MRPL and IOC for the offtake of initial crude quantities from the Rajasthan Block for 2009-10 and 2010-11.

The GoI has also agreed for private refiners to qualify as additional offtakers of the Rajasthan crude. Cairn India has been successful in reaching an agreement to supply Mangala crude to RIL at Jamnagar.  Current production is being trucked to the Gujarat coast and then shipped to MRPL and RIL.

The GoI has also approved the establishment of additional/multiple Delivery Points at Radhanpur and Viramgam for sales to IOC's Panipat and Koyali refineries respectively. 

Commercial terms and pricing have been concluded with IOC, MRPL and RIL. In accordance with the Production Sharing Contract (PSC), 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 December 2009.  

The oil from Rajasthan is categorised as medium gravity and is of a sweet grade with low sulphur content of about 0.1% by weight. While the crude has a high pour point and viscosity due to its waxy nature, it makes an excellent secondary processing feedstock for refiners.

Discussions are in progress with the GoI to allocate additional volumes.

Resource Base including Enhanced Oil Recovery (EOR)

The current assessment of the EOR resource base is more than 300 mmbbls of incremental recoverable oil from the MBA fields.  EOR field pilot trials in Managala are scheduled to commence in Q1 2010. 

The Barmer Hill formation over the Mangala and Aishwariya fields is currently estimated to hold around 400 mmbbls of oil in place in tighter reservoir rocks (lower permeabilities) and work is ongoing to evaluate the resource potential. 

Exploration - RJ-ON-90/1 (Cairn India is the Operator - 70% holding in the Mangala and Bhagyam Development Areas) 

There remains a significant and as yet untested prospective resource potential to pursue across the  Rajasthan basin and technical work continues to assess existing and new plays. 

Two exploration wells are planned in 2010.

Greenland

Cairn has secured two drilling rigs for an exploration well programme in the Disko West area, offshore Western Greenland, in H2 2010. These rigs are the Stena Forth, a sixth generation drill-ship, and the Stena Don, a dynamically positioned and fifth generation semi-submersible.

Contracting two rigs has greatly increased our operational capability and flexibility in Greenland and we can now look forward to drilling up to four exploration wildcat wells in the previously undrilled Baffin Bay Basin offshore Disko West area later this year.  

This acceleration of the exploration programme off the west Greenland coast will allow Cairn to plan and focus a potential 2011 wildcat drilling programme on the previously unmapped and undrilled basins off the coast of southern Greenland.

As part of the strategy to secure further acreage in Greenland, Cairn has also pre-qualified for the Baffin Bay Bid Round which is due to close in H1 2010.

Mediterranean

Planning is underway to drill an exploration well in the Louza block, Tunisia with the Ensco 85 jack-up rig in H1 2010.  

The results of the 2009 3D survey acquired over the Joni Block in Albania are encouraging and an exploration well is currently being considered for early 2011.

Bangladesh

A 3D seismic programme has commenced on the Magnama discovery in the Bay of Bengal.

Nepal

Cairn has lifted Force Majeure on its interests in Nepal and returned to normal operations based on an improvement in the security situation within the block areas to the point where field operations, albeit on an initially limited scale, can safely proceed. 

Cairn has interests in five exploration blocks in Nepal. To date, only limited seismic acquisition has been carried out on the acreage and no wells have been drilled.

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 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.

• 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 a plateau of 175,000 bopd in 2011.

• 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

Glossary

Corporate 

Cairn Energy	Cairn Energy Limited and/or its subsidiaries as appropriate
Company	Cairn Energy Limited
MBA	Mangala, Bhagyam and Aishwariya
MPT	Mangala Processing Terminal
MRPL	Mangalore Refinery and Petrochemicals Limited, (subsidiary of ONGC)
IOC	Indian Oil Corporation
HPCL	Hindustan Petroleum Corporation Limited
RIL	Reliance Industries Limited
GoI	Government of India
Group	the Company and its subsidiaries
NOC	National Oil Company

Technical

2D/3D	two dimensional/three dimensional
boe	barrel(s) of oil equivalent
boepd	barrels of oil equivalent per day
bopd	barrels of oil per day
EOR	enhanced oil recovery
mmboe	million barrels of oil equivalent
mmscfd	million standard cubic feet of gas per day
PSC	Production Sharing Contract

The Fatehgarh is the name given to the primary reservoir rock of the Northern Rajasthan fields of Mangala, Aishwariya and Bhagyam.

The Barmer Hill is a lower permeability reservoir which overlies the Fatehgarh.

The Dharvi Dungar forms the secondary reservoirs in the Guda field and is the reservoir rock encountered in the recent Kameshwari West discoveries.

The Thumbli forms the youngest reservoirs encountered in the basin. The Thumbli is the primary reservoir for the Raageshwari field.

 

END

 

 

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