Operational Update

RNS Number : 9668V

Cairn Energy PLC

23 January 2012

 



FOR IMMEDIATE RELEASE                                                                                            23 January 2012

CAIRN ENERGY PLC ("Cairn")

Operational Update

Cairn intends to announce its preliminary results for the year to 31 December 2011 on Tuesday 20 March 2012. In advance of these results, Cairn is providing information on recent operations and guidance in respect of the Group's trading performance in 2011. This information is unaudited and is subject to further review.

Highlights

Ø Completion of 40% sale of Cairn India Limited (CIL) to Vedanta

Ø 22% interest retained in CIL valued at $2.5 billion (bn) at 31 December 2011

Ø Group cash at 31 December 2011 of $4.7 billion

Ø Proposed return of $3.5 billion to shareholders February 2012

Ø Farm out of 30.625% interest in the Pitu block in Greenland to Statoil ASA

Ø Bhagyam, second biggest field in Rajasthan, commenced production January 2012

Simon Thomson, Chief Executive, Cairn Energy PLC said:

"With a strong balance sheet and the first Greenland farm out completed, Cairn is well positioned to access new opportunities and further growth in 2012.

The completion of the transaction with Vedanta crystallises the very significant value creation that we have delivered from the Indian business allowing us to return $4.5 billion to shareholders over the last five years.

In Greenland, Statoil's extensive Arctic operating and development experience makes them the partner of choice for the Pitu block where we see significant potential."

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]

OPERATIONAL

Greenland

The first phase of Cairn's exploration programme in Greenland has demonstrated that all of the geological ingredients necessary for success are present.  Processing of the 3D seismic data acquired in 2011 will be completed in Q2 2012 with early interpreted results expected in Q3 2012.

Baffin Bay

Cairn is pleased to announce that it has entered into a farm down agreement with Statoil ASA for the Pitu block in the Baffin Bay Basin west of Greenland.

Under the terms of the agreement Statoil will, subject to the approval of the Greenland Government, acquire a working interest of 30.625% in the Pitu licence.  Cairn will retain operatorship (56.875% interest in the block) of the exploration and Statoil will operate any future development. Nunaoil has an ongoing 12.5% interest in the block.

The exact financial terms of the agreement are confidential however Statoil will pay a signature bonus, back costs on the Block and promoted terms of future exploration expenditure.

The 1,500 kilometres square (km²) 3D seismic data acquired by Cairn over part of the Pitu block in Baffin Bay is currently being processed with fully migrated results expected in Q2 2012. The results of the sea bed sampling programme acquired in 2011 confirm new geochemical anomalies at the sea bed above the prospective areas identified on the 2D seismic. These anomalies are related to micro seepages of oil.

Southern Greenland

The 1,500 km², 3D seismic survey acquired over parts of southern Greenland is currently being processed and fully migrated results are expected in Q2 2012.

2012 Programme

Evaluation of the exploration programmes and data acquired (including eight Cairn operated wells) over the last two years is ongoing.  Further seismic surveys in the region are under consideration with the potential for further drilling in the West Greenland basins in subsequent years.

Mediterranean

The Spanish Government awarded Cairn two hydrocarbon exploration Permits in January 2011. The Permits comprise five contiguous blocks in the Gulf of Valencia area, offshore Spain and cover an area of approximately 3,992 km² where the water depths range from 50 metres to more than 1,000 metres.  Cairn has a 100% interest in these blocks which are held under Cairn's Spanish subsidiary, Capricorn Spain Limited. 

Cairn is actively pursuing other acreage in Spain.

Cairn intends to participate, along with its consortium partners CC Energy Development S.A.I (an associated company of CCC, a Lebanese private company) and Cove Energy PLC, in the upcoming bid rounds expected during 2012 in both Lebanon and Cyprus subject to suitable commercial terms.

FINANCE

Cairn and Vedanta completed the transaction for the sale of a 40% stake in CIL on 8 December 2011.  Net post tax proceeds were approximately $5.4 bn in cash.  Combined with the results of CIL for the year prior to disposal, Cairn expects to recognise profits from discontinuing operations in the region of $5.5 bn.

As previously announced, Cairn intends to return $3.5 bn of the proceeds from the sale to shareholders in February 2012.

Shareholders are to receive £1.60 for each Existing Ordinary Share.  The return will be implemented by way of a B share scheme which allows investors to choose whether to receive cash in the form of income or capital, or a combination of both.

A General Meeting will take place on 30 January 2012 to approve the return of cash to shareholders. 

Costs for the 2011 Greenland drilling programme were in the region of $740 million (m).  All drilling costs have been charged to the Income Statement as unsuccessful exploration costs in accordance with the Group's accounting policy.  A further $210 m of drilling costs which remained capitalised following the 2010 drilling programme have also been written off.  Impairment reviews conducted at the year end have resulted in a further charge of approximately $140 m to the Income Statement in relation to non-drilling costs associated with Greenland.

Cairn retains a 22% shareholding in CIL which will be held in the Group's Balance Sheet as an investment at fair value.  At 31 December 2011 this was valued at $2.5 bn.

At 31 December 2011 the Group's cash balances were $4.7 bn.

INVESTMENT IN CAIRN INDIA

India

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 regulatory approval

Ø Bhagyam field commenced production; will ramp up to achieve 40,000 bopd, its currently approved plateau rate

Ø Development of Aishwariya field underway; multiple contractors engaged

Ø Bulk of the currently envisaged basin potential of 240,000 bopd to be met from Mangala, Bhagyam and
Aishwariya fields with full potential of the block, 300,000 bopd, subject to regulatory approval and further investment

Ø Mangala Enhanced Oil Recovery (EOR) pilot continues to progress well; encouraging results observed to date

Ø Two frontier exploration gas discoveries in the first phase of Sri Lanka exploration programme

NOTES TO EDITORS

All references to the share capital of Cairn India in this announcement are calculated on a fully diluted basis.

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 arms to the business:

o  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 currently retains approximately 22% interest in Cairn India (on an un-diluted basis).

o  Capricorn Oil Limited ("Capricorn"), a 100% 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 "Cairn India" where referred to in the release means Cairn India 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 carried out extensive Environmental and Social Impact Assessments to identify how potential
environmental and social impacts of its drilling programme can be avoided or mitigated.

Ø A total of 14 exploration wells have been drilled offshore Greenland to date, five of which were drilled in the 1970s, one in 2000, three in 2010 by Cairn Energy and five by Cairn Energy in 2011.

For further information on Cairn please see: www.cairnenergy.com

 

END

 

 

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