18th Jul 2005 07:00
Cairn Energy PLC18 July 2005 EMBARGOED FOR RELEASE AT 0700 18 July 2005 CAIRN ENERGY PLC Pre-Close Trading and Operational Update Cairn intends to announce its interim results for the six months to 30 June 2005on Tuesday, 20 September 2005. In advance of these results, Cairn is providingan update on recent operations and guidance in respect of the Group's tradingperformance in 2005. This information has not been audited and is subject tofurther review. Operational Overview Cairn currently estimates the total oil in place, in all 12 existing discoveriesto date in the Rajasthan basin, excluding gas, to be in excess of 2.5 billionbarrels (bbls). Main Rajasthan Fields Cairn is making good progress in its efforts to fast track development of thethree largest discoveries to date in the north, namely Mangala, Bhagyam andAishwariya. The combined 2P (proved plus probable) oil in place for theFatehgarh reservoir in these three fields has been independently certified to be1.64 bbls. Cairn estimates the associated reserves based on secondary recoveryare at least 500 million barrels. Additional recovery from Mangala and Bhagyamusing enhanced oil recovery (EOR) techniques has the potential to add up to afurther 150 mmbbls of reserves. The combined production target for these three northern fields is currentlyplanned to be between 120,000 and 150,000 barrels of oil a day (bopd). First oilproduction from Mangala is scheduled for the end of 2007. Other Rajasthan fields and discoveries Cairn has previously announced a further nine discoveries in the basin. Subjectto successful appraisal it is intended to develop these discoveries. Whileconcentration over the last 18 months has been on the rapid evaluation of thehigh quality Fatehgarh reservoirs in the north, in the southern area there are avariety of lower quality reservoirs which may have significant value potential.An active appraisal programme is underway to further delineate these other oilplays and ultimately estimate recovery factors and reserves. •Thumbli formation The Thumbli reservoirs are of varying quality and occur in the central andsouthern areas of the block. The maximum natural flow rate (unstabilised)achieved in a Thumbli test has been 1585 bopd of 36 degree API oil inRaageshwari-3. Recent wells, such as Raageshwari-6, which tested 550 bopd and 5mmscfd, have confirmed the producing potential of this formation which is atarget for future exploration and appraisal activity. •Dharvi Dungar formation The Dharvi Dungar is present in the central basin area and to date has only beentargeted by a few wells. The original Rajasthan discovery well, Guda-2, tested2,000 bopd of 38 degree API oil under natural flow, from the Dharvi Dungar. •Barmer Hill formation The Barmer Hill is a tight siltstone in the north of the block where discoverieshave yet to be evaluated. The relatively poor reservoir characteristics meanthat stimulation by fraccing will be required. In the central area the BarmerHill in Saraswati-1 has produced 62,000 bbls over two long term tests totalling70 days. Development of the southern area fields will typically require a high density ofwells, but with the potential for rapid payback of development expenditure.Plans are being developed to advance production in the southern fields during2006 via a trucking operation. Since the last operational update in June 2005 a number of exploration andappraisal wells have been drilled across the basin. A new small Fatehgarhdiscovery has been made in the north near the existing Shakti field. The recentappraisal drilling and testing activity has concentrated in the southern area inand around the Raageshwari Guda and GR-F discoveries. An 18 month extension of the exploration licence in the northern area wasgranted in May 2005. A 3D seismic crew is continually active in parts of theblock. Rajasthan - Development The final draft of the Field Development Plans for the Mangala, Aishwariya,Saraswati and Raageshwari fields is scheduled for submission in August 2005 toour joint venture partners ONGC for a final review, after which they will besubmitted to the Government of India for approval. The front-end engineering design (FEED) for the Mangala field development islargely complete and the selection process for the detailed engineering designcontractor is underway. The Declaration of Commerciality for the Bhagyam and Shakti discoveries, whichis the first step before the preparation and submission of the Field DevelopmentPlan, has been submitted to our joint venture partners ONGC for review. It isplanned that the development of these discoveries will be integrated with thedevelopment of the Mangala and Aishwariya discoveries. Under the terms of the Rajasthan Production Sharing Contract (PSC), theGovernment of India is in the process of appointing its nominee to take deliveryof the oil produced from these discoveries. Production Following successful in-fill drilling campaigns on the Lakshmi (offshorenorth-west India) and Sangu (offshore Bangladesh) gas fields, the group'sentitlement production for the first six months of 2005 was 27,900 barrels ofoil equivalent per day (boepd) net to Cairn. Full year entitlement productionfor 2004 was 22,789 boepd. Current production is in line with the company'sexpectations. Production boepd Ravva Sangu Lakshmi & Gauri Total(approximate)Gross field 65,000 23,000 15,000 103,000Working interest 14,625 17,250 6,750 38,625Entitlement interest 6,900 13,500 7,500 27,900 Due to the Group's current production mix being heavily gas biased and theexistence of contractual caps on the price received for this gas, the averageprice realised for the six months to 30 June 2005 is expected to be in theregion of $24 per boe (2004 $24.06). Elsewhere in India and South Asia In the deepwater block of the K-G basin off the east coast of India, partiallyfarmed out to ONGC, a three well drilling programme is planned. Cairn hasretained a ten percent interest in this block. The results of bidding for new exploration blocks in India are expected to beannounced around the end of July. This fifth exploration round has attracted ahigh level of international interest in India with very competitive bidding. Bill Gammell, Chief Executive of Cairn said: "Cairn is now moving rapidly from discovery to production in Rajasthan. As wecontinue exploration and appraisal, it is very clear that this basin will notonly provide substantial oil production and cash flow from the large northernfields but will also provide future growth and re-investment potential for Cairnfrom other reservoirs and smaller fields, both discovered and yet to bediscovered." Enquiries to: Cairn Energy PLC:AnalystsBill Gammell, Chief Executive Tel: 0131 475 3000Mike Watts, Exploration DirectorKevin Hart, Finance DirectorMediaDavid Nisbet, Head of Group Communications Brunswick Group LLP:Patrick Handley, Mark Antelme Tel: 0207 404 5959 Notes to Editors: •Cairn focuses its activities on the geographic region of South Asia. The Group holds material exploration and production positions in west India, east India and Bangladesh along with new exploration rights in northern India and Nepal. •This focus on South Asia for more than ten years has already resulted in a significant number of oil and gas discoveries. In particular, the company made a major oil discovery (Mangala) in Rajasthan in the north west of India at the beginning of 2004. •In 2002, Cairn was granted a three year extension of the exploration term of the entire Rajasthan block comprising 6,688 km2 until 15th May 2005. In October 2004 part of the block was converted from an exploration term to a production term forming a 1,858 km2 Development Area. •Northern Appraisal area awarded for 18 months from May 15th 2005. •ONGC took up its option to acquire a 30% participating interest in the Mangala and Aishwariya discoveries in January 2005. •The total of Cairn discovered fields in Rajasthan is 12. To date July 18th 2005 91 wells have been drilled in Rajasthan. •The first part of the Northern seismic programme includes the 3D survey covering an area of 125 km2 in the vicinity of the Bhagyam discovery which has been completed. In parallel with this, an additional 40 kilometres of 2D seismic over the N-I-2 discovery has been acquired to assist with selecting an early appraisal well location, while a 3D survey, covering an area of 320 km2 between Mangala and Bhagyam, including the recent N-I-2 discovery, has started and is expected to be complete by early October 2005. Currently, a 3D survey over the Kameshwari discovery is also planned. •Three wells have recently been successfully tested in the Thumbli reservoir of the Southern part of the block: the GR-F2 appraisal well flowed at 200 bopd of 38 degree API oil from an 8 metre zone in June; the Guda-3 appraisal well tested an average 60 bopd of 35 degree API oil from a 5 metre zone in July; the Raageshwari-6 well tested 550 bopd of 26 degree API oil and 5 MMscfd of gas in the Upper Thumbli, also in July from a 3 metre zone. The maximum combined flow rate achieved in a Thumbli test to date was 1585 bopd of 36 API oil in Raageshwari-3 in 2004. •The Guda-3 well was also used to test the deeper reservoir characteristics of the Dharvi Dungar formation. Guda 3 flowed 2800 barrels p er day of water on test from the Dharvi Dungar formation, confirming good reservoir characteristics and the potential of this formation as a future exploration and appraisal target. Three kilometres to the north of Guda-3, the original basin discovery well Guda-2 has tested this similar sand package at 2000 bopd of 38 API oil in 1999. A recent pressure survey in Guda-2 indicated that although depletion was observed in 1999 the pressure has now built back to original reservoir pressure, and an extended test of this well is planned in the near term. •India currently imports approximately two million barrels of oil a day (bopd). It produces 650,000 barrels a day itself of which 50,000 bopd comes from the Cairn operated Ravva field. For further information on Cairn see www.cairn-energy.plc.uk There are matters discussed in this media information that are forward lookingstatements. Such statements are only predictions and actual events or resultsmay differ materially. For a discussion of important factors which could causeactual results to differ from the forward looking statements, refer to theCompany's annual report and accounts for the year ended 2004. 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