17th Feb 2005 07:00
Cairn Energy PLC17 February 2005 EMBARGOED FOR RELEASE AT 0700 17 February 2005 CAIRN ENERGY PLC Pre Close Operational and Trading Update Cairn intends to announce its preliminary results for the year to 31 December2004 on Tuesday, 19 April 2005. In advance of these results, Cairn is providingan update on recent operations and guidance in respect of the Group's tradingperformance in 2004. The information contained herein has not been audited andis subject to further review. OPERATIONAL UPDATE The major focus of the company over the last few months has continued to be inRajasthan. Rajasthan Block RJ/ON-90/1 • Successful first appraisal well on the N-V field. • Production life from the Development Area estimated to be in excess of 25 years. • Joint Cairn/ONGC review of the Mangala development options under way. • 30 month appraisal extension beyond May 2005 to be sought for acreage outside the Development Area. • Raageshwari deep gas appraisal continuing. • A further 5 wells drilled since December; 2 successful, 2 dry, 1 operating. Bill Gammell, Chief Executive said:"2004 was an excellent year of discovery and growth for Cairn. The more weprogress Rajasthan the better we feel about it. We are continuing to focus on a very active seismic and drilling campaign whileexploring the development opportunities to maximise the value of Mangala,Aishwariya and other discoveries." Rajasthan N-V Oil Discovery and Extension Area The N-V extension area of 856km(2) was awarded to Cairn by the Indian Governmentin January 2005 on the basis of the N-V-1 oil discovery made in August 2004. Thefirst appraisal well, which is an extended reach well N-V-1ST, is currentlyoperating and has been drilled 750 metres from the discovery well. The N-V-1ST well has confirmed that the field extends into the extension area.This highly deviated well has encountered 320 metres of net high qualityFatehgarh oil pay sands, which equates to 104 metres of true vertical net oilpay. It has a common oil water contact with the discovery well. A test programme is presently being prepared and the N-V-1ST well is expected tobe suspended as a potential future producer. A further two appraisal wells areplanned on this structure. An update will be available with end of year resultsin April.Elsewhere in the extension area a 2D seismic survey is currently under way and aminimum of two additional wells are planned before the end of May 2005. Rajasthan Development Area The Development Area covers 1858km(2) on the block under long term contract.This area includes the Mangala and Aishwariya fields discovered last year,several other fields and discoveries, and the future exploration potential overthe entire Development Area. Cairn currently estimates the production life for projects within theDevelopment Area to be in excess of 25 years. Consequently, Cairn intends toseek an extension beyond 2020, which is the current initial development term. ONGC became a 30% participant in the Development Area in January 2005. Theexperience and knowledge of ONGC, gained from its major developments in theCambay basin to the south, is invaluable in assisting the joint venture'sselection of the commercial development options. Cairn expects to submit a Field Development Plan on behalf of the joint ventureto the Indian Government in May. Other activity within the Development Area continues apace. A 450km(2) 3Dseismic survey has been completed across the Mangala and Aishwariya fields. Theinterpretation of this data is under way and preliminary results areencouraging. As a result of the 3D seismic over Aishwariya an up dip well hasbeen programmed to confirm the crest of the field. A further 3D seismic surveyover the N-R-1 and N-R-2 discoveries is nearing completion. Current drillingactivity is focused on the deep gas play at Raageshwari, in the southern part ofthe area. Potentially large in place volumes of gas have been established at Raageshwariin non conventional volcanic reservoirs. The Raageshwari-5 well tested 1 mmscfdof gas from the volcanic section and 1.5 mmscfd from the Fatehgarh. This wellwill shortly be placed on long term test. A further down-dip appraisal well,Raageshwari-6, will core the Fatehgarh section and is designed to confirmadditional in place gas volumes in the Fatehgarh. To enhance our understanding of potential recovery factors, well stimulationstudies are continuing. Future fraccing of Raageshwari wells may enable theoptimal deliverability to be determined before reserve assessments can be made. Rajasthan Exploration Area A significant portion of the remaining exploration acreage outwith theDevelopment Area is unappraised. Cairn will be seeking a 30 month extension ofthe appraisal period beyond May 2005. Rajasthan - Overall Drilling Activity Cairn has drilled five additional wells in Rajasthan since the December update. Exploration wells W-A-1, which was 35 km south east of Mangala and W-B-1, whichwas 64km south west, were plugged and abandoned. GR-F-2 and Guda-3 both appraised previous oil discoveries in the Thumbliformation. The Thumbli oil play has significant oil in place potential andproductivity trials along with stimulation tests indicate the potential forcommercial production. Various development options for the Thumbli oil arecurrently being reviewed. The exploration well GR-A-2 is currently drilling 150 km south of Mangala. Near term drilling activity will focus on the N-V area, prospects around Mangalaand Aishwariya, and exploration for the deep gas potential in the south of theRajasthan block. Other Producing Properties in India (Ravva, Lakshmi and Gauri) Ravva continues to perform well and additional infill wells are planned laterthis year, subject to required regulatory approvals, to maintain plateauproduction. At Lakshmi four out of five infill wells have so far been drilled,three of which have been completed and put on production. Currently the Lakshmiand Gauri fields are producing in excess of 100 mmscfd of gas. Bangladesh Following the acquisition of an additional 37.5% equity interest and theOperatorship from Shell on 30 June 2004, Cairn has implemented a second phase ofdevelopment drilling at Sangu, which consists of an additional three developmentwells. Two of these development wells have been drilled and completed, with the thirdwell in the process of being completed. This takes the number of activedevelopment wells from four to seven and will help provide greater flexibilityin meeting the field deliverability requirements. The three new development wells have identified a difference between thevolumetrically-derived estimates and material-balance derived estimates ofgas-in-place for two of the main producing reservoirs. Cairn will be adoptingthe lower material-balance derived estimates and re-categorising the differencein the "possible" reserve category. As domestic market demand for gas becomes increasingly strong and historic Sangupayment delays are largely resolved, Cairn is now considering recommencingactive exploration in Bangladesh. Group Reserves In accordance with Cairn's previously stated intention, an independentassessment of its reserves estimates on all its fields in Bangladesh and Indiahas been conducted by an internationally-recognised firm of reservoir engineers,DeGolyer and MacNaughton, using information available as at December 2004. 2004 PRE CLOSED PERIOD TRADING STATEMENT Average 2004 production is outlined in the table below: Production boepd Ravva Sangu Lakshmi& Gauri Gryphon* Total(approximate)Gross field 68,000 22,000 13,000 3,300 106,300Working interest 15,300 12,200 6,500 300 34,300Entitlement interest 7,500 7,600 7,400 300 22,800 * Cairn sold its only remaining North Sea interest during May 2004 As stated in the Interim Results, well intervention and infill drillingprogrammes to enhance production on both the Sangu and Lakshmi gas fieldscommenced in the latter part of 2004 and are ongoing. As a consequence, grossproduction in 2005 is expected to exceed that achieved in 2004. In accordance with the terms of the respective Production Sharing Contracts("PSCs"), Cairn's production entitlement from both the Ravva and Sangu fieldsdecreased in 2004. Following the October Arbitration Hearing award in relation to theinterpretation of the Ravva PSC, first quarter 2004 production from the fieldhas been revised to reflect a higher Government share during this period.Production acquired pursuant to the acquisition of Shell's interests inBangladesh has been recognised from the transaction completion date (30 June,2004). Although principally a US$ business, the Group reports in Sterling and thereforethe financial results have been impacted by the weakening of the US$ againstSterling from $1.79 to $1.92 during 2004. The average price realised by the Group for 2004 is anticipated to be in theregion of $24 per boe compared with $22.86 per boe for 2003. The average cost ofsales per barrel is expected to be in the region of £7 to £7.50 per boe comparedto £6.39 per boe in 2003. The increase in the average cost of sales per barrelreflects a revision to the remaining entitlement reserves due to a reduction inthe estimate of gross remaining proved plus probable reserves, primarily fromthe Sangu field and the impact of higher oil price assumptions when calculatingCairn's share of future production. With work ongoing to determine the optimal development plan for Mangala andAishwariya, the associated Rajasthan proved plus probable reserves will bedisclosed but are unlikely to be booked in the year end financial statements. Gross profit, pre exceptional items, for 2004 is expected to be in the region of£45m to £52m. Operating profits, pre exceptional items, are anticipated to beapproximately £28m to £33m. As stated in the announcement made in October, following findings of theArbitration Hearing in respect of the interpretation of the Ravva PSC, the Grouphas reviewed its provisioning in respect of this liability. As a consequence,the Group is expected to report an additional exceptional charge net of tax ofapproximately £8m to £10m. Capital expenditure for the Group in 2004 was approximately £127m, comprising£90m exploration/appraisal expenditure, £35m development expenditure, and £2mother fixed assets. At the year end the Group had no gearing and net funds of circa £70m. Inaddition, pre tax proceeds of approximately $135m from the previously announcedONGC transaction are expected to be received in early 2005. The Group currentlyhas $240m of unutilised unsecured revolving credit facilities. The 2004 financial statements are being prepared in accordance with theprinciples of UK GAAP. Reporting under International Financial ReportingStandard (IFRS) is mandatory for the Group for periods ending after 1 January2005 with restatement of 2004 comparatives resulting. Guidance on the impact ofIFRS on Cairn's financials will be provided to analysts as part of thetransition process. Enquiries:- Cairn Energy PLCAnalysts/InvestorsBill Gammell Chief Executive Tel: 0131 475 3000Dr Mike Watts Exploration and New Business Director Tel: 0131 475 3000Kevin Hart Finance Director Tel: 0131 475 3011 Media Tel: 0131 475 3000David Nisbet, Head of Group Communications Brunswick Group PPL Tel: 0207 404 5959Patrick Handley, Mark Antelme 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 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. • Cairn has received formal approval from the Government of India for a Declaration of Commerciality in respect of the Mangala, Aishwariya, Saraswati and Raageshwari discoveries. The approval secures Cairn an extensive Development Area of 1,858 km(2) which also incorporates the, GR-F, Kameshwari, N-R and Guda discoveries, which are at various stages of appraisal. • The Development Area is the equivalent in size of 12 North Sea Blocks. • The Development Area is currently retained until 2020 with options for further extension subject to mutual agreement with the Government of India. • Plateau rates for the Mangala and Aishwariya (formerly N-A field) fields are currently targeted at between 80,000 and 100,000 barrels per day. • ONGC took up its option to acquire a 30% participating interest in the Mangala and Aishwariya discoveries in January 2005. • India currently imports 2 million barrels of oil a day. It produces 650,000 barrels a day itself of which 50,000bopd comes from the Cairn operated Ravva field. •"Cairn" where referred to in this release means Cairn Energy PLC and/or its subsidiaries, as appropriate. This announcement contains certain operational and financial information inrelation to 2004, which is subject to final review and has not been audited.Furthermore, it contains certain forward-looking statements that are subject tothe usual risk factors and uncertainties associated with the oil & gasexploration and production business. Whilst the Group believes the expectationsreflected herein to be reasonable, the actual outcome may be materiallydifferent owing to factors either within or beyond the Group's control, andaccordingly no reliance may be placed on the figures contained in such forwardlooking statements. For further information on Cairn see www.cairn-energy.plc.uk This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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