Cairn India Limited announces Q1 FY 2013 Results

23 July 2012

Vedanta Resources plc

Cairn India Limited announces Results for the First QuarterEnded 30 June 2012

For Immediate Release 23 July, 2012

Cairn India Limited

First Quarter Financial Results for the period ended 30 June, 2012

The following commentary is provided in respect of the unaudited financial results and operational highlights of Cairn India Limited and its subsidiary companies (referred to as "Cairn India" or the "Company", NSE: CAIRN, BSE: 532792, Bloomberg: CAIR) for the first quarter (from April - June 2012) for FY 2012-13, in accordance with Indian GAAP.

Please note: ` denotes Indian Rupee and US$ denotes US Dollar.

Rahul Dhir, Managing Director and Chief Executive Officer, Cairn India said:

"We have recently crossed the cumulative production milestone of 100 million barrels from the Rajasthan block. This has helped us reduce oil imports by US$ 9 billion and has contributed ~US$ 3 billion to the national exchequer.With the support of the Government of India, Government of Rajasthan and our JV partner, ONGC, we are well poised to further explore the potential in the hydrocarbon rich Barmer Basin in Rajasthan, thereby contributing to reduce our nation's crude import dependence."

Ø Revenue at ` 44,400 million (US$ 821 million) 

Ø EBITDA at ` 34,569 million (US$ 639 million)

Ø PAT at ` 38,257 million (US$ 707 million)

Ø Cash flow from operations at ` 28,174 million (US$ 521 million)

Ø Net cash of ` 110,975 million (US$ 1,963 million) as on 30 June, 2012

Ø Average daily gross operated production at 206,963 barrels of oil equivalent (boe) (working Interest production at 127,226 boe)

§ Gross production helped reduce nation's crude oil import dependence by ~US$ 1.8 billion

§ Gross contribution to the national exchequer (excluding direct taxes) was ~US$ 800 million

Ø Gross Rajasthan development capex till date US$ 3,492 million

Ø Rajasthan

Ø Cumulative oil production from the Rajasthan block crossed 100 million barrels; generated more than US$ 9 billion gross revenue till date

Ø Mangala field currently producing ~150,000 bopd following Government of India (GoI) approval on 19 April, 2012

Ø Bhagyam field currently producing ~25,000 bopd; focus on drilling residual wells and de-bottlenecking of pipeline

Ø Aishwariya field development in progress; now expected to commence production by end FY 2012-13

Ø Mangala Processing Terminal (MPT) integrated production facilities can support production of more than 175,000 bopd in line with unified block offtake capacity

Ø Enhanced Oil Recovery (EOR) pilot project on track; Field Development Plan (FDP) for full field polymer flood in Mangala submitted to the Operating Committee (OC)

Ø Barmer to Salaya section of the pipeline (~590 km) continues to safely deliver crude oil to the buyers; de-bottlenecking process to enhance its capacity under progress

Ø Other Assets

Ø Ravva infill drilling and workover campaign helped arrest the rate of production decline; efforts underway to evaluate further potential in deeper prospects through 4D seismic interpretation

Ø CB/OS-2 facilities commenced tolling of ONGC's gas from its North Tapti field

Ø In KG-ONN-2003/1 block, appraisal activity is being planned to evaluate the size and commerciality of the second discovery i.e. Nagayalanka-SE-1 well; gross in place resource estimated at ~550 mmboe for both discoveries

Ø SL 2007-01-001 block

Ø Completed acquisition of 600 sq km of 3D seismic data under Phase II exploration; data processing underway

Note:

Cash flow from Operations- refers to PAT (excluding other income and exceptional item) prior to non-cash expenses and exploration costs

Gross cash available to the company as on 30 June, 2012 was ` 123,475 million (US$ 2,184 million). The non-convertible debentures (NCD) outstanding as on 30 June, 2012 were ` 12,500 million (US$ 221 million). The net cash available as on 30 June, 2012 was ` 110,975 million (US$ 1,963 million).

Revenue reported for the quarter post profit sharing with the Government and the Rajasthan block royalty expense was ` 44,400 million (US$ 821 million).

The profit petroleum for Development Area 1 (DA1) of the Rajasthan block (net to the company) was ` 6,829 million (US$ 126 million). The profit petroleum percentage sharing is based on the Investment multiple (IM) calculated at the end of the previous financial year.

Earnings before Interest Tax Depreciation and Amortisation (EBITDA) for the quarter was ` 34,569 million (US$ 639 million), up by 19% qoq resulting to an EBITDA margin of 78%.

The company made a net foreign exchange gain of ` 8,663 million (US$ 160 million) primarily due to the depreciation of rupee against the US$.

The company generated highest quarterly profit after tax (PAT) at ` 38,257 million (US$ 707 million) and quarterly earnings per share (EPS) at ` 20 per share.

The gross cumulative Rajasthan development capital expenditure spend as on 30 June, 2012 was US$ 3,492 million, of which US$ 57.7 million was spent during the quarter including US$ 20.1 million on Bhagyam field.

The average US$-` exchange rate for Q1 FY 2012-13 was ` 54.10 vs. ` 44.72 for Q1 FY 2011-12. The average Q4 FY 2011-12 exchange rate was ` 50.21. The closing exchange rate as on 30 June, 2012 was ` 56.55.

The Scheme of Arrangement between the Company and some of its subsidiaries, to simplify and consolidate the multi-layered structure comprising foreign subsidiaries, has been approved by the Hon'ble High Courts of Madras and Bombay, shareholders and Joint Venture (JV) partners. The scheme is subject to receipt of regulatory approvals which are being expedited.

Cairn India Board approved the Dividend Policy at its meeting in April 2012. However, declaration and payment of dividend will be considered after approval of the Scheme of Arrangement.

1. Rajasthan (Block RJ-ON-90/1)

On 19 June, 2012 cumulative oil production from the Rajasthan block crossed the 100 million barrels mark from Mangala, Bhagyam, Raageshwari and Saraswati fields with current production at ~ 175,000 bopd. The crude oil has been sold to five refineries belonging to the Public Sector Undertaking (PSU) and private refiners. The MPT plant uptime stood at 99.5% during Q1 FY 2012-13 and figured in the top decile amongst global peers.

Mangala field is currently producing ~150,000 bopd, post GoI approval on 19 April, 2012, as compared to earlier production of 125,000 bopd.

Bhagyam field continues to produce ~ 25,000 bopd and is expected to gradually ramp up to its approved plateau rate of 40,000 bopd.

The Raageshwari and Saraswati fields continue to cumulatively produce ~500 bopd. The availability of the integrated processing and evacuation facility has resulted in the economic viability of the marginal fields by keeping operating costs low.

Cairn India is committed to maintaining the highest Health, Safety, Environment and Assurance standards and will continue to focus on maintaining a safe work culture in all its activities.

Rajasthan Project Development

The MPT is currently handling 175,000 bopd. We have started additional work in order to ensure the availability of the facilities for field life. Development drilling and well completion activities in line with approved FDP are underway in Bhagyam and Mangala and continue to progress well.

At Mangala, a total of 149 development wells have been drilled and completed. The field is currently producing ~150,000 bopd.

Crude oil production from Bhagyam commenced in January 2012 and is currently at ~25,000 bopd. At Bhagyam, a total of 64 wells have been drilled to date. The drilling activity for the residual wells approved under FDP is in progress. Along with this, the pipeline de-bottlenecking is underway. This will enhance the field production as well as pipeline capacity to reach the FDP approved rate of 40,000 bopd. Crude oil is transported via the Bhagyam trunk line to MPT for processing and then exported through the heated pipeline.

Development work on the Aishwariya field is currently underway with EPC contracts awarded. The crude oil production is expected to commence end FY 2012-13, subject to JV and GoI approval.

The Plant uptime is figured in the top decile amongst global peers. In line with standard industry practice, we envisage staggered shutdowns to tie-in new fields, routine maintenance periods for safe operations, etc. Accordingly, we expect routine downtime of 3%-5% for the facilities and processing infrastructure. However, our endeavour remains at maintaining the minimum downtime.

Mangala Development Pipeline

Phase 1 of the pipeline from MPT to Salaya continues to safely deliver crude oil to IOCL and private refiners since the last two years. This section provides us with access to over 1.6 million barrels per day of refining capacity. The uptime during the quarter stood at 99.96%. It has recorded more than 5 million LTI-free man hours to date.

Work on the remaining ~80 km Salaya to Bhogat section of the pipeline is facing execution challenges. This section including the Bhogat Terminal facility is expected to be completed in H1 CY 2013. The Marine facilities off the coast of Bhogat, are installed and under preservation awaiting completion of remaining facilities.

The pipeline is currently operating at 175,000 bopd and is under the process of de-bottlenecking to add additional capacity. Overall, the pipeline can handle much higher volumes in line with the basin potential through incremental investments and augmentation of facilities, subject to regulatory approvals.

Sales

Crude oil sales arrangements are in place with PSU and Private Refiners for volumes in excess of 175,000 bopd. The crude is currently being supplied to four refineries. The sales arrangements were ramped up in line with the production increase post approval of higher offtake from Mangala.

The Rajasthan crude is well established in the market, generating higher demand and thereby increased value for its stakeholders. We have enough demand for the crude in the current pipeline route. In accordance with the RJ-ON-90/1 PSC, the crude is benchmarked to Bonny Light, West African low sulphur crude that is frequently traded in the region, with appropriate adjustments for crude quality. The implied crude price realisation for this quarter (average of three months up to June 2012) represents a lower discount than the stated guidance of 10%-15% discount to Brent, due to the prevailing global macro-economic conditions and inter-product spreads.

Resource Base

The Rajasthan block has a total estimated gross in-place resource of 7.3 billion boe with an expected ultimate recovery of 1.7 billion boe. The resource base supports the currently envisaged basin potential of 300,000 bopd (equivalent to a contribution of ~40% of India's total domestic current crude production). The three main fields i.e. Mangala, Bhagyam and Aishwariya (MBA) have gross recoverable oil reserves and resources of approximately one billion barrels (including EOR potential). The Mangala and Bhagyam fields with the current production of ~175,000 bopd are contributing around 20% of the current domestic crude production.

The polymer phase of the EOR pilot in the Mangala field was completed as per schedule and the results have been encouraging. The FDP for the full field polymer flood implementation has been submitted to the OC. We have booked 2P reserves of 70 mmboe from the Mangala EOR. This is the start of the process for monetising the full EOR potential of the block. Planning for the commencement of the next phase of EOR pilot i.e. the Alkali Surfactant Polymer (ASP) phase is underway.

The preparation of the FDP for Barmer Hill, over Mangala and Aishwariya field, is currently underway. The execution of the hydraulic fracturing program for the development of Barmer Hill is subject to the regulatory approvals. The Barmer Hill Formation contains hydrocarbons throughout most of the basin; a successful development at Mangala and Aishwariya may lead to broader commercialization of this widespread, rich resource base.

Following a review of reservoir performance at Mangala, development drilling results from Bhagyam and a re-evaluation of the resource base in Aishwariya, we are confident of delivering a significant part of the 240,000 bopd from the MBA fields.

2. Eastern India (Block PKGM-I - Ravva Field) - Krishna Godavari Block Basin

The block recorded the completion of 7.94 million safe man hours, which demonstrates our commitment to safety.

The Ravva field celebrated its 17th year of successful operations, has produced more than 249 mmbbls of crude and sold 309 billion cubic feet of gas, more than double its initial estimates. During the quarter, the plant uptime was 98%.

Asset integrity measures in line with statutory compliances are in progress. 

3. Western India (Block CB/OS-2) - Cambay Basin

In order to optimise the infrastructure utilisation, a tolling and processing arrangement has been made with ONGC to process the gas from its North Tapti field (adjacent to the Lakshmi field) at the spare gas processing capacity of the CB/OS-2 facilities. ONGC completed the North Tapti pipeline tie-in with the CB/OS-2 facilities and pursuant to a MOU executed in March 2012, the tolling of gas commenced on 2 June, 2012.

The block recorded more than nine million safe work hours over the last seven years, which demonstrates our continued commitment to operate safely. The CB/OS-2 facilities had an uptime of over 99.9% in Q1 FY 2012-13.

Note-all the blocks except KG-DWN-98/2 are operated by Cairn India

Exploration activity is focused on the continuous evaluation of blocks by applying cutting-edge geophysical and geological technologies to enhance the probability of exploration success and eventually monetising hydrocarbon resources.

Cairn India has a portfolio of nine blocks, located in three strategically focused areas: one in Rajasthan; two on the west coast of India; six on the east coast of India including one in Sri Lanka. Out of these, eight blocks including the three that are in production, are operated by Cairn India.

The blocks are located in the Barmer Basin, Krishna-Godavari Basin, the Palar-Pennar Basin, the Cambay Basin, the Mumbai Offshore Basin and the frontier Mannar Basin.

India Block Updates

In the RJ-ON-90/1 block, the JV is actively pursuing to get the necessary exploration approvals from the GoI. We continue to assess existing and new plays to generate further prospects in the block. The ongoing analysis and evaluation work has resulted in doubling the risked recoverable prospective resource from 250 mmboe to 530 mmboe.

In the KG-ONN-2003/1 block, post the second discovery i.e. Nagayalanka SE-1, the company plans to evaluate the size and commerciality through further appraisal activity. The estimates of the gross in place resource for both the discoveries is ~550 mmboe.

In the KG-OSN-2009/3 block and MB-DWN-2009/1 block, awarded in the NELP VIII licensing round, force majeure was declared by Cairn India due to denial of defence clearances for further exploration activity. This has been accepted by the Directorate General of Hydrocarbons (DGH). Cairn India is in discussions with the GoI to resolve the matter.

For the KG-DWN-98/2 block, Cairn India has decided to sell its stake to its JV partner, ONGC. This is in the final stage of securing necessary GoI approvals. This divestment of non-material equity is part of Cairn India's process of continuous portfolio optimisation.

In the PR-OSN-2004/1 block, force majeure has been declared due to the denial of permission to drill in the restricted area by the Department of Space. This has been accepted by the DGH. The JV partners are in discussions with the GoI to resolve the matter.

In the Ravva block, deeper exploration prospectivity has been identified and exploration drilling is planned in 2013. The infill drilling programme resulted in slowing down the production decline rate.

The contractor has completed the minimum work program in the KK-DWN-2004/1 block committed in Phase I of the exploration period. Post completion, the contractor relinquished the block.

Sri Lanka Block Update

In the Sri Lanka Block SL 2007- 01-001, Cairn Lanka has successfully completed the first phase of exploration campaign. This resulted in two successive discoveries in the three well drilling programme. The company has entered the second phase of exploration and completed acquisition of 600 sq km of 3D seismic data. Processing of this data is underway. With the exploration drilling planned in mid 2013, tendering for the drilling rig and the associated services is in progress.

The potential commercial interest notification has been submitted for the two Discoveries i.e. the Dorado and Barracuda wells, as per the terms of the Petroleum Resource Agreement (PRA) 

Cairn India Limited

Registered Office: 101, West View, Veer Savarkar Marg, Prabhadevi, Mumbai - 400025

Corporate Office: 3rd & 4th Floors, Vipul Plaza, Sun City, Sector-54, Gurgaon - 122002

(All amounts are in ` lakhs, unless otherwise stated)

Notes:-

1. The above unaudited financial results for the current quarter ended 30 June 2012 were subjected to a limited review by the auditors of the Company and reviewed and recommended by the Audit Committee and approved by the Board of Directors at their meeting held on 23 July 2012.

2. The figures for the quarter ended 31 March 2012 are the balancing figures between audited figures in respect of the full financial year ended 31 March 2012 and the unaudited published year to date figures upto 31 December 2011, being the end of the third quarter of the previous financial year, which were subjected to a limited review.

3. The individual items in the above financial results are net of amounts cross charged to oil and gas blocks where the Group is the operator. The Group's share of such net expenses in oil and gas blocks is treated as exploration, development or production costs, as the case may be.

4. Employee costs for the current quarter include stock option charge of ` 719 lakhs computed under the Intrinsic Value Method. The said charge for the current quarter would have been ` 1,868 lakhs, if computed under the Fair Value (Black Scholes) Method.

5. 473,714 additional equity shares were issued during the current quarter on exercise of stock options by the employees of the Cairn India Group.

6. The shareholders of the Company have approved a Scheme of Arrangement between the Company and some of its wholly owned subsidiaries, to be effective from 1 January 2010. The Scheme of Arrangement has been approved by the Hon'ble High Court of Madras and the Hon'ble High Court of Bombay; however, it is pending for approval from other regulatory authorities. Pending receipt of such approvals, no accounting impact of the scheme has been given in the above results.

7. Vedanta Resources Plc. along with its subsidiaries (Vedanta group) became the promoter of the Company w.e.f. 8 December 2011. Consequently, royalty paid by Oil and Natural Gas Corporation Limited with respect to the RJ-ON-90/1 block was treated as cost recoverable, as it was one of the pre-conditions imposed by the Government of India for approving the transaction of sale of shares by Cairn Plc. group to Vedanta group resulting in reduction in revenues and profit after tax of the Cairn India Group. The reduction on this account for the period upto 31 March 2011 was disclosed as an exceptional item in the previous year ended 31 March 2012.

8. The Group operates in only one segment i.e. "Oil and Gas Operations".

9. Previous quarters / year's figures have been regrouped / rearranged wherever necessary to confirm to the current quarter's presentation.

Cairn India Limited

Registered Office: 101, West View, Veer Savarkar Marg, Prabhadevi, Mumbai - 400025

Corporate Office: 3rd & 4th Floors, Vipul Plaza, Sun City, Sector-54, Gurgaon - 122002

(All amounts are in `lakhs, unless otherwise stated)

Notes:-

1. The above unaudited financial results for the current quarter ended 30 June 2012 were subjected to a limited review by the auditors of the Company and reviewed and recommended by the Audit Committee and approved by the Board of Directors at their meeting held on 23 July 2012.

2. The figures for the quarter ended 31 March 2012 are the balancing figures between audited figures in respect of the full financial year ended 31 March 2012 and the unaudited published year to date figures upto 31 December 2011, being the end of the third quarter of the previous financial year, which were subjected to a limited review.

3. Employee costs for the current quarter include stock option charge of ` 65 lakhs computed under the Intrinsic Value Method. The said charge for the current quarter would have been ` 1,205 lakhs, if computed under the Fair Value (Black Scholes) Method.

4. 473,714 additional equity shares were issued during the current quarter on exercise of stock options by the employees of the Cairn India Group.

5. The shareholders of the Company have approved a Scheme of Arrangement between the Company and some of its wholly owned subsidiaries, to be effective from 1 January 2010. The Scheme of Arrangement has been approved by the Hon'ble High Court of Madras and the Hon'ble High Court of Bombay; however, it is pending for approval from other regulatory authorities. Pending receipt of such approvals, no accounting impact of the scheme has been given in the results.

6. The Company operates in only one segment i.e. "Oil and Gas Operations".

7. Previous quarters / year's figures have been regrouped / rearranged wherever necessary to confirm to the current quarter's presentation.

Contact Details

On 9 January, 2007, Cairn India Limited was listed on the Bombay Stock Exchange and the National Stock Exchange of India. Cairn India is now part of the Vedanta Group, a globally diversified natural resources group with wide ranging interests in aluminium, copper, zinc, lead, silver, iron ore, etc.

Cairn India is headquartered in Gurgaon in the National Capital Region, with operational offices in Tamil Nadu, Gujarat, Andhra Pradesh, Rajasthan and Sri Lanka.

Cairn India is primarily engaged in the business of oil and gas exploration, production and transportation. Average daily gross operated production was 206,963 boe in Q1 FY2012-13. The Company sells its oil to major refineries in India and its gas to both PSU and private buyers.

The Company has a world-class resource base, with interest in eight blocks in India and one in Sri Lanka. Cairn India's resource base is located in three strategically focused areas namely one block in Rajasthan, two on the west coast of India and six on the east coast of India, including one in Sri Lanka.

The blocks are located in the Barmer Basin, Krishna-Godavari Basin, the Palar-Pennar Basin, the Cambay Basin, the Mumbai Offshore Basin and the frontier Mannar Basin.

Cairn India's focus on India has resulted in a significant number of oil and gas discoveries. Cairn made a major oil discovery (Mangala) in Rajasthan in the north west of India at the beginning of 2004. To date, twenty five discoveries have been made in the Rajasthan block RJ-ON-90/1.

In Rajasthan, Cairn India operates Block RJ-ON-90/1 under a PSC signed on 15 May, 1995. The main Development Area (1,859 km2), which includes Mangala, Aishwariya, Raageshwari and Saraswati is shared between Cairn India and ONGC, with Cairn India holding 70% and ONGC having exercised their back in right for 30%. The Operating Committee for Block RJ-ON-90/1 consists of Cairn India and ONGC.

Further Development Areas (430 km2), including the Bhagyam and Shakti fields and (822 km2) comprising of the Kaameshwari West Development Area, is also shared between Cairn India and ONGC in the same proportion. The Mangala, Bhagyam and Aishwariya (MBA) fields have gross recoverable oil reserves and resources of approximately 1 billion barrels, which includes proved plus probable (2P) gross reserves and resources of 636 mmboe with a further 300 mmboe or more of EOR resource potential. The Rajasthan block is contributing more than one fifth of current domestic crude production. The total resource base supports a vision to produce 300,000 bopd, (equivalent to a contribution of approximately 40% of India's current domestic crude production), subject to further investments and regulatory approvals.

In Andhra Pradesh and Gujarat, Cairn India on behalf of its JV partners operates two processing plants, 11 platforms and more than 200 km of sub-sea pipelines with a production of approximately 40,000 boepd.

Block SL 2007-01-001 was awarded to Cairn Lanka in the bid round held in 2008. This offshore block is located in the Gulf of Mannar. The water depths range from 400 to 1,900 meter. Cairn Lanka (Private) Limited is a wholly owned subsidiary of Cairn India and holds a 100% participating interest in the block. The signing of the Petroleum Resource Agreement (PRA) to explore oil and natural gas in the Mannar Basin was held in July 2008 in Colombo.

India currently imports more than 2.5* million bopd of crude oil. The domestic crude oil production is approximately 0.76 million bopd of which Cairn India operated assets (Ravva, CB/OS-2 and the RJ-ON-90/1) contribute more than one-fifth.

For further information on Cairn India Limited & Cairn Lanka (Pvt.) Limited see www.cairnindia.com & www.cairnlanka.com

*PPAC Provisional data for FY 2011-12

Disclaimer

This material contains forward-looking statements regarding Cairn India and its affiliates, 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 India undertakes no obligation to revise any such forward-looking statements to reflect any changes in Cairn India's expectations with regard thereto or any change in circumstances or events after the date hereof. Unless otherwise stated the reserves and resource numbers within this document represent the views of Cairn India and do not represent the views of any other party, including the Government of India, the Directorate General of Hydrocarbons or any of Cairn India's joint venture partner

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About Vedanta Resources plc

Vedanta Resources plc ("Vedanta") is a London listed FTSE 100 diversified global natural resources major. The group produces aluminium, copper, zinc, lead, silver, iron ore, oil & gas and commercial energy. Vedanta has operations in India, Zambia, Namibia, South Africa, Ireland, Liberia, Australia and Sri Lanka. With an empowered talent pool globally, Vedanta places strong emphasis on partnering with all its stakeholders based on the core values of entrepreneurship, excellence, trust, inclusiveness and growth. For more information, please visit www.vedantaresources.com.

Disclaimer

This press release contains "forward-looking statements" - that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "should" or "will." Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, uncertainties arise from the behaviour of financial and metals markets including the London Metal Exchange, fluctuations in interest and or exchange rates and metal prices; from future integration of acquired businesses; and from numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive or regulatory nature. These uncertainties may cause our actual future results to be materially different that those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.