The following commentary is provided in respect of the audited financial results and operational highlights of Cairn India Limited and its subsidiary companies (referred to as Cairn India) during the financial year 2010-11 (FY 2010-11). Please note that FY 2010-11 refers to the period April 2010 - March 2011.
Rahul Dhir, Managing Director and Chief Executive Officer, Cairn India said, "Cairn India's continued focus on safe and efficient operations has helped us to quickly ramp up the Mangala production to 125,000 bopd and deliver almost 40 mmbbls of crude oil to Indian refineries.
"The successful delivery of the large scale Rajasthan project, the continued focus on life cycle planning and low cost operations in Rajasthan, Ravva and CB/OS-2 along with the application of innovative technologies has created a strong foundation for our future growth.
"We are therefore, well placed for the exploration drilling campaign in the frontier Mannar Basin in Sri Lanka later this year."
CHIEF EXECUTIVE REVIEW
The successful completion of the first phase of the Rajasthan development represents a significant milestone in the growth and development of Cairn India. The Mangala field is now producing at the currently approved plateau rate of 125,000 bopd - a substantial contribution to the energy security of our nation.
The successful development of the complex Rajasthan Project further underscores Cairn India's capabilities to develop world-class projects.
Rajasthan crude is now transported to a number of refineries in India by the world's longest continuously heated and insulated pipeline. This infrastructure is strategically important as all the remaining fields and discoveries can be quickly connected to the market.
With the production from Mangala at 125,000 bopd and the commencements of pipeline sales, Cairn India has taken the first major step for transformational, multi-year production and sales growth.
The first phase of the Rajasthan development including three processing trains, multiple well pads and the pipeline infrastructure is complete. The operations have achieved very high global standards of efficiency with more than 98% uptime.
In addition, our commitment to health, safety and environment standards has helped us achieve top quartile benchmarking in safe operations.
The development of the Mangala Processing Terminal in Barmer has transformed this part of the Thar Desert and placed the state of Rajasthan on the global hydrocarbon map.
All this was achieved through the application of innovative technologies:
We are now focused on the second phase of the Rajasthan development to reach the currently approved plateau production of 175,000 bopd, which will account for 20% of the country's crude production. The development of the Bhagyam field, the second largest discovery in Rajasthan is well underway, and we expect to achieve plateau production by the end of this calendar year.
Our enhanced understanding of the Mangala reservoirs, following development drilling in the field, indicates a production potential of 150,000 bopd, subject to JV and GoI approval.
The construction of the fourth processing train at the MPT is progressing well. Upon completion of this train, the total crude processing capacity at the MPT will be 205,000 bopd.
Work on the pipeline extension from Salaya to Bhogat and the marine facility is ongoing. Completion of this segment will provide the Rajasthan crude access to more than 75% of our nation's refining capacity.
In addition to the above, the EOR pilot project in Mangala which commenced in early 2010 is progressing as per expectations. The successful implementation of EOR in Rajasthan has the potential to increase recoverable reserves by more than 300 million barrels of oil equivalent (mmboe), and materially extend the duration of the plateau production.
Strengthened by the subsurface capability and the infrastructure development, the Company is focused on tying up the necessary sales volumes with various refiners. To date, sales arrangements are in place for 155,000 bopd and discussions continue for additional volumes.
Our current understanding of the resource base in Rajasthan supports a vision to produce 240,000 bopd; equivalent to a contribution of ~35% of India's current crude production, subject to further investments, JV and regulatory approvals. However, it should be noted that our ability to ramp up to these levels requires active support of the GoI and JV partners.
Our success in Ravva and Cambay highlight our ability to maximize recovery and manage costs in mature assets. Our operations here have also helped us develop our talent. The Ravva field completed 16 years of successful operations in October 2010. The results of the recent 4D seismic program have helped us identify bypassed oil and highlight the future potential in Ravva. The current infill drilling and workover program in Ravva will help access this potential. The gas balancing agreement in Cambay is a unique way to monetize our share of gas from the shared reservoir. This is a first of its kind arrangement in India and has generated gross revenues in excess of US $30 million to date.
Exploration is another key driver of the future growth of the Company. Cairn India continues to optimise its exploration portfolio by adding new prospective blocks and relinquishing some, thereby increasing its net unrisked potential resource base. The discovery in the Nagayalanka-1z well in the KG-ONN-2003/1 block in the east coast of India may help determine the onshore extent of the hydrocarbon potential of the prolific Krishna-Godavari basin. The Company will also start an exploration drilling campaign in the frontier Mannar Basin in Sri Lanka this year.
Regarding the Rajasthan block, ONGC, the JV partner, has raised a dispute that the royalty payable under the Production Sharing Contract (PSC) should be considered as contract cost for cost recovery purposes. As per the PSC provisions, the cost of royalty shall be borne by the licensee, which under the PSC, is ONGC. Based on the PSC provisions and legal advice received, we are of the view that royalty is not a contract cost eligible for cost recovery.
With increasing cash inflows, the Company replaced its earlier Rupee financing facility with Unsecured Non-convertible Debentures of R 22.5 billion (US $500 million) in October 2010. Cairn India's ability to raise finance at competitive costs demonstrates the robustness of its assets and the growth in cash flows. As on 31 March, 2011, the Company's net cash was at R 29,070 million (US $651 million).
In order to facilitate a dividend policy, a scheme of reorganization for the demerger of 'Indian Undertakings' of certain foreign subsidiaries in favor of Cairn India was approved by the shareholders and courts. However, the implementation of this scheme of reorganization is still awaiting regulatory and JV approvals.
The later part of the year saw the announcement of a shareholder level transaction between Cairn Energy PLC and Vedanta Resources Plc. Cairn India awaits the outcome of the ongoing transaction.
Cairn India's achievements have been widely acknowledged. The Rajasthan Operations received nine safety awards in the 24th "Mine Safety Awards" organized under the aegis of the Directorate General of Mines Safety, Rajasthan. In recognition of our community engagement initiatives, Cairn India was awarded the "Golden Peacock Award for Corporate Social Responsibility" for 2011. Also, the Bombay Stock Exchange recognized Cairn India as the "Company offering the Best Investor Returns." All of these are a testament of what defines Cairn India – uncompromising safety at our work place, working with communities where we operate in whilst enhancing long term shareholder value and securing energy for our nation.
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