Cairn India's profits jump, production rises

Cairn India reported today the company's unaudited financial results and operations achievements for the third quarter of 2009-10, whereby the financial year spans April 2009 to March 2010.

FINANCIAL REVIEW

In Q3 FY 2010, the gross production of the operating units was 66,843 boepd (63,005 boepd in the corresponding quarter of the previous year) and working interest production was 24,599 boepd (16,591 boepd in the corresponding quarter of the previous year). Current quarter production numbers include gross production of 15,430 boepd and working interest production of 10,801 boepd from the Rajasthan block.

The average oil price realisation in Q3 FY 2010 was USD 73.8/bbl and for the corresponding quarter of the previous year was USD 56.4/bbl. The gas price realisation in Q3 FY 2010 was USD 4.5/mscf and for the corresponding quarter of the previous year was USD 4.0/mscf.
Average price realisation per boe was USD 66.9 in Q3 FY 2010 and for the corresponding quarter of the previous year was USD 47.1.

The consolidated revenue of Cairn India for Q3 FY 2010 was INR 4,955 million (USD 106 million) as compared to INR 2,108 million (USD 43 million) in the corresponding quarter of the previous year. The consolidated profit after provision for tax for Q3 FY 2010 was INR 2,910 million (USD 62 million) as compared to INR 2,364 million (USD 49 million) for the corresponding quarter of the previous year.

“Cash flow from operations”, worked out as profit after tax (excluding other income) prior to non-cash expenses (non-cash employee cost, depreciation, depletion, amortization and deferred tax) and exploration cost was INR 2,769 million (USD 59 million) for Q3 FY 2010 as compared to INR 979 (USD 20 million) for the corresponding quarter of the previous year. Cash available as at 31 December 2009 was INR 27,569 million (USD 591 million) and the loan drawn down till 31 December 2009 against the loan facility of USD 1.6 billion was INR 32,102 million (USD 688
million).

Amounts shown in USD are converted based on average exchange rate for the Q3 FY 2010 of INR 46.60 for revenue items and at the closing exchange rate as on 31 December 2009 of INR 46.67 in respect of cash balance (average rate of the corresponding quarter of the previous year was INR 48.72).

Cairn India’s USD 1.6 billion financing deal has been awarded the “Oil & Gas Deal of the Year” for Asia Pacific region by PFI - Project Finance International (Thomson Reuters group). The syndication process of the facilities has been successfully completed with a total of 14 banks joining the two groups i.e. USD Facility for 750 million and INR Facility for 40 billion. The demand is an indication of the lenders’ faith and confidence in the Rajasthan project.

OPERATIONAL REVIEW

Gross operated production for the third quarter was 66,843 boepd (working interest 24,599 boepd). The average crude oil price realisation this quarter was USD 73.8/bbl and the average gas price was USD 4.5/mscf resulting in an average price realisation of USD 66.9/boe. Rajasthan (Block RJ-ON-90/1) (Cairn India 70% (Operator); ONGC 30%) Cairn India and its joint venture (JV) partner ONGC have an area of 3,111 km2, under long term contract on the Rajasthan licence spread across the districts of Barmer and Jalore.

The Mangala Field, which was discovered in January 2004, is the largest onshore oil discovery in India in more than 20 years. The Mangala, Bhagyam and Aishwariya (MBA) fields have recoverable oil reserves and resources of nearly 1 billion barrels, which includes proven plus probable (2P) gross reserves and resources of 685 million barrels of oil equivalent (mmboe) with a further 300 mmboe or more of Enhanced Oil Recovery (EOR) potential.

More than 12,000 people are currently involved in the construction of both the upstream and midstream projects. More than 35 million LTI free manhours have been achieved in Upstream Project.

Development – Upstream

The MPT is designed to process crude from the MBA fields and has a capacity to handle 205,000 bopd of crude with scope for further expansion. Four processing trains are being built to ensure that the JV is able to produce and process the approved peak plateau production of 175,000 bopd in 2011.

Train one, with a capacity to process 30,000 bopd, has been commissioned and handles current Mangala production. The crude oil is being evacuated via trucking to the Gujarat coast for onward transport to MRPL and RIL, using heated crude oil tankers. Mangala production will continue to build during the ramp up phase; average gross production was 15,430 bopd in Q3 FY 2010; with current production of ~20,000 bopd.

All equipment for Train Two (capacity of 50,000 bopd) has been erected and pre commissioning activities are under way and along with Train Three is targeted to attain a capacity of 125,000 bopd at the MPT by end of H1 CY 2010.

Construction of the Raageshwari gas Terminal and the Thumbli water field (saline aquifer) have been completed. Work on the well pads, in-field pipelines, processing facilities, buildings, power generation and associated utilities are at an advanced stage of completion.

Development drilling and the well completion activities are currently underway with two drilling rigs and one completion rig operating in the Mangala development area. A third drilling rig will commence drilling operations in Rajasthan in Q1 CY 2010. 43 development wells have been drilled of which 33 wells have been completed and made ready for initial production.

Adding on to the success of the first horizontal well at Mangala, which tested at an oil production rate of more than 11,500 bopd, Cairn has successfully drilled and completed two more horizontal wells in Mangala. Five wells are currently producing and the other wells will be brought on stream in a staged manner during the ramp-up period. The results from all the wells drilled to date confirm the good reservoir quality and the high deliverability potential of the Fatehgarh Formation reservoir.

A hydro-fraccing campaign in three Raageshwari Deep gas wells was carried out across ten gas zones. After treatment, the first well tested in Raag-14 proved a gas rate of 15.7 mmscfd, the highest ever in the field. This test result indicates the potential for improved frac designs, which could be applied to the low permeability reservoir zones of the Barmer Hill Formation in the near future.

Development - Midstream (Pipeline)

Of the total length of the MPT to Bhogat pipeline of ~670 km which passes through the states of Rajasthan and Gujarat, the MPT to Salaya section is 590 km and has been laid. Hydro-testing is in progress to facilitate completion and commissioning of the pipeline.

Work is in progress to align near term sales volumes with production capacity. Discussions continue with GoI and buyers to optimise offtake during the ramp up. Gas has been introduced into the gas pipeline section to Radhanpur to help commission the crude oil pipeline. The crude oil pipeline section from MPT to Radhanpur is in advanced stages of commissioning.

Construction activity is at an advanced stage of completion at the Viramgam Terminal location and on all the 33 Above Ground Installation stations and the Salaya distribution hub. More than 95% of the construction activities have been completed on the route of the pipeline.

In-principle approvals for the Salaya to Bhogat section have been obtained and the necessary land purchase has been completed. Bhogat lies on the Gujarat coast and provides further flexibility in respect of future offtake volumes.

Crude – Sales

GoI has nominated MRPL, IOC and HPCL for the offtake of initial crude quantities from the Rajasthan Block for the period 2009-10 and 2010-11. Four parcels have been delivered to MRPL and been processed successfully. GoI has also agreed for private refiners to qualify as additional offtakers of the Rajasthan crude. Cairn India has been successful in reaching an agreement to supply Mangala crude to RIL at Jamnagar. The crude is currently being trucked to the Gujarat coast and then being shipped to MRPL and RIL. The supplies have commenced and two parcels have been delivered to RIL.

Discussions are in progress with the GoI to allocate additional volumes.

GoI has approved the establishment of additional/multiple Delivery Points at Radhanpur and Viramgam for sales to IOC’s Panipat and Koyali refineries respectively and an additional Delivery Point at Kandla port for delivery of crude to MRPL and other coastal refineries, until the pipeline for transporting crude from Barmer to Bhogat is operational.

The commercial terms and pricing negotiations for the initial offtake of the Rajasthan crude have been concluded with GoI nominees, IOC and MRPL and private refiner, RIL. In accordance with the Production Sharing Contract, this pricing is based on comparable low sulphur crude frequently traded in the region – Bonny Light - with appropriate adjustments for crude quality. The implied price realisation represents an average 10-15% discount to Brent on the basis of prices prevailing for the twelve months to December 2009.

The oil from Rajasthan is categorised as medium gravity and is of a sweet grade with low sulphur content of about 0.1% by weight. While the crude has a high pour point and viscosity due to its waxy nature, it makes an excellent secondary processing feedstock for refiners.

Resource base including enhanced oil recovery (EOR)

Cairn India is at an advanced stage of preparation to conduct an EOR pilot trial in the Mangala field. The current assessment of the EOR resource base is more than 300 mmbbls of incremental recoverable oil from the MBA fields. The drilling of the EOR pilot wells is expected to commence in Q1 CY 2010. Cairn India is also in the final stages of planning to carry out pilot work to evaluate the Barmer Hill formation over the Mangala and Aishwariya fields currently estimated to hold around 400 mmbbls of oil in place in tighter reservoir rocks (lower permeabilities). Exploration - RJ-ON-90/1 (Cairn India is the Operator - 70% holding in the Mangala and Bhagyam Development Areas)

There remains a significant and as yet untested prospective resource potential to pursue in the Barmer Basin of the Rajasthan block and Cairn is preparing for drilling at least two exploration wells in CY 2010. Technical evaluation work continues to assess existing and new plays in the basin to generate further prospects in Rajasthan.

Cairn India – Producing Assets Krishna-Godavari Basin - Eastern India

Ravva (Cairn India 22.5% (Operator))


Average gross production from the Ravva field for Q3 FY 2010 was 38,668 boepd (comprising an average oil production of 30,957 bopd and average gas production of 46.26 mmscfd). Originally estimated to produce 101 million barrels of crude oil, the field has already produced around 223 million barrels. Cairn is confident of the field’s considerable remaining reserve potential and of producing more oil from this block before the expiry of the PSC primary term in 2019.

The Ravva block’s direct operating cost per barrel at approximately USD 2.1 per bbl is amongst the lowest in the world. This has been possible only through life-cycle planning, continuous monitoring and the innovative application of operating technologies.
Cairn and its joint venture partners have commenced the 4D seismic campaign to identify bypassed oil zones within the field and the scope of further reserve addition through infill drilling.

Cambay Basin - Western India

Block CB/OS-2: (Cairn India 40% (Operator))

Average gross production from the CB/OS-2 block for Q3 FY 2010 was 12,744 boepd (comprising an average oil / condensate production of 8,998 bopd and average gas production of 22.48 mmscfd).

The application of advanced geophysical tools has helped map thin oil sands which are beyond seismic resolution. These techniques have transformed CB/OS-2 block from a predominantly gas field to an oil field.

Cairn India has signed a Term Sheet agreement to produce Gauri share of GBA (Gas Balancing Agreement – for sharing of gas from the shared reservoir formation) gas through the Hazira facilities on 8 December 2009. The gas production and sales commenced on 9 December 2009. This is a first of its kind arrangement in the country which showcases the company’s commitment to produce gas in the most economical manner and contribute to the nation’s energy security.

Cairn India – Exploration – Other Assets

In addition to the ongoing exploration activities in the three producing blocks, Cairn India currently has exploration interests in seven blocks in India and one in Sri Lanka, four of which are operated by the Company. These blocks are located in the Krishna-Godavari Basin, the Palar-Pennar Basin, Kerala Konkan Basin, Cambay Basin, Gujarat Saurashtra Basin, Barmer Basin, Indus Basin, Ganga Valley and the Mannar Basin offshore Sri Lanka.

The Company made two successful bids in the NELP VIII licensing round, and was awarded the KG-OSN-2009/3 and MB-DWN-2009/1 blocks, subject to MoPNG approval. The Company has completed its work programme commitments in the Ganga Valley exploration blocks GV-ONN-2002/1 and GV-ONN-2003/1.

The 2009–10 operated exploration programme includes the drilling of 5 other wells outside Rajasthan and seismic acquisition in two blocks, as well as participation in non-operated JV activity. The five operated wells are to be drilled in KG-ONN-2003/1 in Q1 and Q2 CY 2010, as the commitment work programme in this block. The preparations for the exploration campaign in this block are well advanced with the first drill site ready and 4 others at an advanced stage of preparation. The company plans to commence drilling in Q1 CY 2010.

The acquisition of 3D seismic in the Palar-Pennar Basin (offshore Andhra Pradesh / Tamil Nadu) has started with the completion of data acquisition expected in Q1 CY 2010. This new seismic acquisition positions Cairn India for an extensive drilling programme in this block in 2010-11. In the non-operated blocks, the GSS031NAA-1 well was spudded by the JV operator ONGC to test Tertiary limestones in the GS-OSN-2003/1 block. The Company expects to reach the total depth (TD) in Q1 CY 2010.

The first of the 3 deep water appraisal wells, U-1-EXT-OCA-AA, was spudded in block KG-DWN-98/2 by JV operator ONGC during Q4 CY 2009 with the remainder of the appraisal wells being drilled by end Q2 CY 2010. These wells are to appraise the existing gas discovery in the block. The Company expects to reach the total depth (TD) in the U-1-EXT-OCA-AA well during Q1 CY 2010 Cairn Lanka Private Limited, the wholly owned subsidiary of Cairn India, commenced its 3D seismic survey in the Mannar Basin in Sri Lanka on the 10 December 2009 and is making excellent progress. The programme will fulfil the commitment of 1,450 km2 of 3D seismic data acquisition.



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