The Sangu gas field was discovered by Cairn in 1996 and commenced production in June 1998. Remaining proven plus probable reserves net to Cairn's existing 37.5% interest at 30 June 2003 were 423 bcf on a working interest basis (70.5 mmboe) and 242 bcf on an entitlement basis (40.4 mmboe). Gross production from Sangu during the first half of 2003 averaged 136 mmscfd. Cairn's net share of production on a working interest and entitlement basis was 51 mmscfd (8.5 mboepd) and 47 mmscfd (7.8 mboepd) respectively.
Further information on the SDA and Blocks 5 and 10 is included in the Appendix to this announcement. Cairn's interests following completion of the acquisition would be:
The consideration for the acquisition is:
The provision in the LOI regarding an additional royalty payable on entitlement gas production from the acquired interests excluding the SDA has been removed from the Asset Purchase Agreement.
In addition, the existing carry agreements and area of mutual interest agreements between Cairn and Shell will be terminated on the closing date.
The Cash Consideration will be adjusted to reflect net working capital movements between the economic effective date and the closing date including any accrued royalty payments and carry reimbursements. It is anticipated that the adjusted Cash Consideration will be met from Cairn's existing US$150 million revolving credit facilities.
Shell will retain operatorship of the assets until the closing date, following which Cairn will assume operatorship under the terms of transfer of operatorship agreements to be agreed between Cairn and Shell. The agreements will include provisions dealing with the transfer of Shell's Bangladesh national employees to Cairn.
It is anticipated that satisfaction of all the conditions of the acquisition will take place within 24 months of the economic effective date. As revenues are expected to exceed expenditure in relation to the assets being acquired in the period prior to closing, it is anticipated that the working capital adjustment referred to above will reduce the Cash Consideration.
Bill Gammell, Chief Executive, commented: 'Acquiring Shell's interests in Bangladesh will provide Cairn with additional low cost and long life production in Cairn's core business area and is expected to provide excellent financial returns and materially enhance shareholder value.
This deal further enhances Cairn's ability to take advantage of the rising demand in the Bangladesh domestic gas market and the strong positive cash flow from the increased interest in Sangu can be utilized to continue to pursue exploration opportunities in our core focus area of South Asia.'
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