29th Jan 2007 07:02
Cairn Energy PLC29 January 2007 29 January 2007 EMBARGOED FOR RELEASE AT 0700 CAIRN ENERGY PLC Operational Update Cairn will announce its preliminary results for the year to 31 December 2006 on27 March 2007. In advance of these results, Cairn is providing information onrecent operations since the last update on 5 September 2006 and guidance inrespect of the Group's trading performance in 2006. This information isunaudited and is subject to further review. Highlights CORPORATE • Initial Public Offering (IPO) of Cairn India successfully completed - trading commenced in January 2007 • Return of cash to Cairn Energy PLC shareholders scheduled for Q2 2007 INDIA • Cairn India and ONGC progressing discussions with the Government of India (GoI) on midstream solution - resolution anticipated in H1 2007 • Ravva infill drilling campaign underway with positive results on first two wells • Non-operated ultra-deep water well on KG-DWN-98/2 has encountered hydrocarbons and is currently operating • New oil discovery in Rajasthan (Shakti North East) BANGLADESH • Sangu gross booked reserves reduction of 187 billion cubic feet (Bcf) • Three well drilling campaign, including the potential high impact Hatia exploration well, commenced offshore Bangladesh in January 2007 • Onshore seismic campaign ongoing on Blocks 5 and 10 NEPAL • Agreement reached to acquire 100% interest in Blocks 3 and 5, subject to required consents Sir Bill Gammell, Chief Executive said: "The successful completion of the IPO has created an autonomous business andmanagement team for our world class assets in India as well as realisingsignificant value for our existing shareholders. I am pleased to be able to report that good progress has been made by CairnIndia in determining offtake arrangements for Rajasthan crude and remainconfident that the first oil target of 2009 from Mangala can be achieved. The combination of future Rajasthan production and active drilling programmes inboth India and Bangladesh provides the potential for continued growth in therespective asset portfolios and Cairn India is poised to play an integral partin meeting India's growing energy demand." Enquiries to:Analysts/InvestorsJann Brown, Finance DirectorMike Watts, Exploration Director Tel: 0131 475 3000 Media Tel: 0207 404 5959Brunswick Group LLP:Patrick Handley, Mark Antelme, Phoebe Buckland Cairn India Media EnquiriesDavid Nisbet Tel: 00 91 99 1048 7715 Corporate The flotation and listing of Cairn India on the Bombay Stock Exchange and theNational Stock Exchange of India on 9 January 2007 was a major achievement. Theculmination of Cairn's vision, focus and effort on South Asia has resulted inthe creation of India's largest independent exploration and production companyand raised a total of $1.9 billion. Cairn India is now an Indian listed company managed and directed from withinIndia. Cairn has retained a holding of approximately 69% in Cairn India, withthe balance of shares held by Petronas (10%), Indian domestic and globalinstitutional investors. Cairn India is committed to continuing investment inIndia. The Cairn India IPO underscores the increasing confidence of businesses andinvestors in the Indian regulatory environment, the Indian capital markets andthe associated growth potential offered by Cairn India. The proceeds of the IPO will be used to fund the future growth of both Cairn andCairn India, with the remaining funds to be returned to shareholders of CairnEnergy PLC in Q2 2007. As previously indicated, this will be done in a way tomaximise tax efficiency for shareholders. To maintain future operational flexibility, all of the assets not transferred toCairn India (Bangladesh, Nepal and some exploration interests in northern India)have been brought under a subsidiary called Capricorn Energy Limited("Capricorn") which is 100% owned by Cairn Energy PLC. Operations Cairn India Cairn India has active operated exploration and infill drilling campaigns inRajasthan and Ravva, with further development drilling planned in the CambayBasin during 2007. In addition, Cairn India is currently participating in anONGC operated exploration well offshore eastern India in ultra-deep water. CairnIndia and Capricorn both participated in an ONGC operated exploration well(Tisua-1) in the Ganga Valley which failed to flow on test and is interpreted ashaving encountered only residual hydrocarbons. The Rajasthan development continues apace, with construction work commencingshortly in preparation for planned first oil in 2009. Talks on determining theofftake arrangements with the GoI are progressing and Cairn India is confidentthat a satisfactory resolution will be determined in the interests of allstakeholders in order to maximise the value of this world class resource base. Capricorn For a combination of reasons explained in the reserves section below, grossSangu field reserves have been reduced by 125 Bcf. A further 62 Bcf has beenreclassified from the probable (2P) to the possible (3P) category resulting in atotal gross reserves reduction of 187 Bcf. A three well drilling programme was commenced in January 2007 targeting anappraisal well on South Sangu, an infill development well on Sangu and anexploration well on the Hatia prospect. Rajasthan RJ-ON-90/1 (Cairn India 70% and Operator) Development Areas Construction work will commence shortly for planned first production fromMangala in 2009. The Field Development Plans (FDPs) for the Mangala, Aishwariya,Saraswati and Raageshwari fields have been agreed by the GoI and the fundingsecured for the initial upstream development, with the first phase ofdevelopment drilling on Saraswati now underway. All the permits and permissions required to begin major construction work havebeen granted and Cairn India is currently procuring the major items of long leadequipment required to establish the production facilities as planned. Thetechnical specifications for three purpose built rigs have been released andbids sought for the provision of these 'flex type' modularised rigs which willbe used to drill the development wells. These state of the art rigs will allowthe drilling of the Mangala horizontal wells and running completions which willbe used to deliver the first phase of the target production rate of 150,000barrels of oil per day (bopd). The detailed engineering design for the Mangala development is progressing inHouston; the design team comprises Cairn India personnel working alongsidecolleagues from Mustang Engineering. The impact of the severe flooding inRajasthan last year on field development design and activities is beingassessed. The GoI has approved the Declaration of Commerciality (DoC) for Bhagyam, thesecond largest field, along with the Shakti field. These fields are containedwithin a second development area of 430 km2. It is currently anticipated thatFDPs for Bhagyam and Shakti will be submitted to the GoI in Q1 2007. An FDP forthe Guda field will be submitted separately. An additional discovery, Shakti North East, has been retained within the Bhagyam/Shakti development area. Shakti-NE-1, which is located 6 km north-east of theShakti-1 discovery, encountered approximately 6 metres of net pay of oil with anAPI of 13-15 degrees. A cased hole test on Shakti-NE-1 confirmed a flow of 83bopd. Midstream Under the terms of the RJ-ON-90/1 Production Sharing Contract (PSC), the GoI orits nominee is responsible for the purchase of crude oil and the transportationof the crude oil produced from the delivery point at the field facilities to therefinery (midstream activities). Transportation currently entails theconstruction of a pipeline downstream of the delivery point to handle theexpected volumes of crude oil. By conducting studies and third party discussions relating to the evacuation ofthe crude, Cairn India has built up a comprehensive understanding of the likelyconstruction timescale for the pipeline and the associated technical andcommercial issues involved. In order to ensure efficient offtake of the Rajasthan crude, Cairn India hasbeen involved in ongoing and detailed discussions with the GoI, ONGC and otherthird parties. The purpose of these discussions is to ensure the properintegration and control of both the upstream and the midstream in order tomaximise the distribution and marketing options. Discussions are progressing andCairn India believes that this issue will be resolved in order to meet theschedule to achieve first oil in 2009. Subject to the outcome of discussions with the GoI as to its role in themidstream project Cairn India is ready to award the front end engineering design(FEED) contract for the first phase of the preferred pipeline alternative. Southern Fields In the south of the Rajasthan block, first commercial production by truckingfrom the Saraswati field is ready to start and will begin as soon as anarrangement for oil sales has been finalised with the GoI. First commercialproduction from the Raageshwari oil field is expected to commence within 12months of Saraswati. Northern Appraisal Area (Cairn India 100% and Operator) In June 2005, Cairn was granted an 18 month extension (until 14 November 2006)to complete its activities in the northern appraisal area to the north and westof the Development Area. However, the work programme in this area wasinterrupted by the severe flooding in Rajasthan in 2006. Cairn has subsequentlyceased operations in this area and is in discussions with the GoI for a furtherextension of part of this acreage to complete its work programme. Eastern India Ravva (Cairn India 22.5% and Operator) An onshore exploration well (RX-9), spudded in June 2006, was plugged andabandoned after encountering non-commercial quantities of hydrocarbons. An 8 well offshore infill and exploration drilling programme on Ravva commencedin October 2006. The first appraisal well (RD-7) encountered oil and gas in themain producing intervals at Ravva with 38 m of net oil pay. The second well(RD-8), also an appraisal well on one of the main Ravva fault blocks,encountered 16 m net of Middle Miocene oil bearing sands with average porosityof 30% and average oil saturation of 60%. In addition a 3.5 m thick sandprognosed to be absent was encountered in an oil leg. Current operations are ona crestal infill development well (RC-5). Gas sale price increase The ceiling prices under each of the Ravva gas sales contracts (GSCs) have beenincreased following re-negotiation with the buyer (GAIL). The ceiling price forassociated gas has increased by 18% and the ceiling price for non-associated gashas increased by 30%. KG-DWN-98/2 (Cairn India 10%, ONGC Operator) The G-1 exploration well drilled in August and September 2006 was plugged andabandoned with gas shows. The UD-1 ultra-deep water exploration well, located140 km south of Ravva, was spudded in late September 2006 after the acquisitionand interpretation of additional 2D seismic data. The UD-1 well has encounteredhydrocarbons in a secondary objective. The well has been side-tracked formechanical reasons and is currently operating above the main target. Northern India GV-ONN-2002/1 (Cairn India 50% (Operator), Cairn Energy PLC/Capricorn 50%) An airborne geophysical survey is scheduled to commence shortly followed by a 2Dseismic acquisition programme commencing in March 2007. GV-ONN-97/1 (Cairn India 15%, Cairn Energy PLC/Capricorn 15%; ONGC Operator) The first exploration well in the Himalayan Foreland Basin in which Cairn hasparticipated (Tisua-1) has been plugged and abandoned after encounteringresidual oil shows. Western India Block CB/OS-2: Lakshmi and Gauri Gas Fields (Cairn India 40% and Operator) An offshore four well infill development drilling programme is scheduled tocommence in H2 2007. The GSCs with the buyers (GTCL and GPEC) have been re-negotiated and thesecontracts are currently being finalised with the joint venture partners. Engineering studies to upgrade the oil handling facilities at Gauri to 9,000bopd have been completed and an upgrade is scheduled for completion in Q3 2007.During 2006 oil sales to private buyers averaged 3,539 bopd at an averagerealised price of $57 per barrel. The onshore CB-X well has been completed and the pipeline installation is inprogress to deliver first gas in Q2 2007. Block RJ-0NN-2003/1 (Cairn India 30%, ENI Operator) The Operator has recently commenced acquisition of a 3D seismic survey on thisRajasthan block, which was awarded in NELP V. NELP VI The GoI has yet to formally announce the outcome of the sixth New ExplorationLicensing Policy round (NELP VI). There was an unprecedented level of interestin this latest round with highly competitive bidding from domestic companies.Cairn, through Cairn India and Capricorn, submitted joint venture bids alongwith ONGC, Videocon, Tata Petrodyne, British Gas and Total. Following the bidding, which closed on 15 September 2006, the GoI has indicatedthat the relevant PSCs will be signed in the coming months. Bangladesh (Cairn Energy PLC/Capricorn 75% and Operator) The Sangu gas field, although now in decline, has produced in excess of 400 Bcfsince commencement of production in 1998. To date, the Sangu joint venture hasgenerated gross revenue of approximately $800 million. Cairn has commenced a three month offshore drilling programme in Bangladeshwhich will consist of three wells. The first of these is an appraisal well onthe Sangu South field approximately 4 km south-east of the main Sangu field. Thesecond well will target a potentially undrained part of the main Sangu field.The third well (Hatia-1) will be a vertical exploration well to be drilled on a1 trillion cubic feet (unrisked) prospect located approximately 10 km north-westof Sangu. In parallel to the drilling of these three wells, Cairn is also undertaking wellintervention work on some existing production wells which is intended to boostproduction. A 392 km 2D seismic survey has recently been completed on Block 10 and a further296 km 2D survey has now commenced on Block 5. Nepal Blocks 1, 2, 4, 6 and 7 (Cairn Energy PLC/Capricorn 100% and Operator) Assuming continued improvement in the political climate in Nepal, Cairnanticipates that it will be in a position to commence field operations in late2007 or early 2008, subject to agreement with the Government to cease thecontractual force majeure currently in place in respect of these blocks. In addition, Cairn has reached agreement with Texana for the acquisition of a100% interest in Blocks 3 and 5 in Nepal, subject to contract and requiredGovernment approvals. Group Production The Group's entitlement production for 2006 was 24,500 barrels of oil equivalentper day (boepd) net to Cairn compared to 28,300 boepd in 2005. Production (boepd) Ravva Lakshmi/Gauri Sangu Total(approximate)Gross field 61,600 21,200 22,200 105,000Working interest 13,800 8,500 16,700 39,000Entitlement interest 6,500 8,100 9,900 24,500 Cairn's current production is 74% gas: 26% oil. This high gas weighting,combined with the contractual caps on the gas price received, means that theaverage price per boe in 2006 is approximately $32. On commencement of oilproduction from Rajasthan, the majority of Group production will be oil(currently estimated to be approximately 90%). As a direct consequence of this,the Group will become much more highly geared to prevailing oil prices. Group Reserves The FDPs for the Mangala, Aishwariya, Saraswati and Raageshwari fields wereapproved by the RJ-ON-90/1 Management Committee ("the Management Committee") andinitial reserves for Mangala, Saraswati and Raageshwari to 2020 have beenbooked. The proposed development sequence for the Rajasthan northern fields isMangala, Bhagyam and Aishwariya. A decision on the booking of the Aishwariyareserves will be deferred until the Bhagyam FDP and associated expenditure havebeen approved by the Management Committee. The draft FDPs for the Bhagyam and Shakti fields are scheduled to be submittedin Q1 2007 for approval by the Management Committee. Once this approval has beenobtained, associated reserves from these fields to 2020 will also be booked. AnFDP for the Guda field will be submitted separately. Sangu gross proven and probable (2P) reserves have been reduced by a total of187 Bcf. Of this 69 Bcf is attributable to the results of the 2005/2006 Sanguappraisal drilling campaign, combined with poorer than predicted productionperformance in 2006. Another 56 Bcf is attributable to a decision to reclassifythe reserves associated with Sangu gas compression to the contingent resourcescategory. Currently, an additional 100 Bcf of gross reserves is attributed to apotentially undrained compartment of the Sangu field on which an infilldevelopment well is planned as part of the ongoing drilling programme. Of this,a decision has been taken to move a risked 62 Bcf from the probable (2P) to thepossible (3P) category. The impact of these adjustments is to reduce currentSangu gross booked reserves to 142 Bcf, which represents less than 6% of thetotal estimated currently booked Group reserves for 2006. The final Group reserves position for the year ended 31 December 2006 will beincluded in the results announcement scheduled for 27 March 2007. Notes to Editors: •On 9 January 2007, Cairn successfully concluded the flotation of its Indian business with the commencement of trading of Cairn India Limited on the Bombay Stock Exchange and the National Stock Exchange of India. Cairn Energy PLC currently holds a majority shareholding in Cairn India Limited. •"Cairn" where referred to in this release means Cairn Energy PLC and/or its subsidiaries (including Cairn India), as appropriate. •"Cairn India" where referred to in the release means Cairn India Limited and/or its subsidiaries, as appropriate. •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 India and Nepal. •This focus on South Asia 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 over 20 discoveries in Rajasthan block RJ-ON-90/1. •Cairn operates Block RJ-ON-90/1 under a Production Sharing Contract (PSC) signed on 15 May 1995. The main Development Area (1,858 km2), which includes Mangala, Aishwariya, Saraswati and Raageshwari; is shared between Cairn and ONGC, with Cairn holding 70% and ONGC having exercised their back in right for 30%. •India currently imports approximately 2,000,000 barrels of oil per day (bopd). It produces approximately 700,000 bopd itself of which 50,000 bopd comes from the Cairn operated Ravva field on the east coast of India. •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) will continue to be run from Edinburgh with operational offices in Dhaka, Chittagong and Kathmandu. 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:
Capricorn Energy PLC