Cairn Energy Provides Operational Update

Cairn intends to announce its interim results for the six months to June 30, 2005 on Tuesday, September 20, 2005. In advance of these results, Cairn is providing an update on recent operations and guidance in respect of the Group's trading performance in 2005. This information has not been audited and is subject to further review.

Operational Overview

Cairn currently estimates the total oil in place, in all 12 existing discoveries to date in the Rajasthan basin, excluding gas, to be in excess of 2.5 billion barrels (bbls).

Main Rajasthan Fields

Cairn is making good progress in its efforts to fast track development of the three largest discoveries to date in the north, namely Mangala, Bhagyam and Aishwariya. The combined 2P (proved plus probable) oil in place for the Fatehgarh reservoir in these three fields has been independently certified to be 1.64 bbls. Cairn estimates the associated reserves based on secondary recovery are at least 500 million barrels. Additional recovery from Mangala and Bhagyam using enhanced oil recovery (EOR) techniques has the potential to add up to a further 150 mmbbls of reserves.

The combined production target for these three northern fields is currently planned to be between 120,000 and 150,000 barrels of oil a day (bopd). First oil production from Mangala is scheduled for the end of 2007.

Other Rajasthan fields and discoveries

Cairn has previously announced a further nine discoveries in the basin. Subject to successful appraisal it is intended to develop these discoveries. While concentration over the last 18 months has been on the rapid evaluation of the high quality Fatehgarh reservoirs in the north, in the southern area there are a variety of lower quality reservoirs which may have significant value potential. An active appraisal programme is underway to further delineate these other oil plays and ultimately estimate recovery factors and reserves.

•Thumbli formation

The Thumbli reservoirs are of varying quality and occur in the central and southern areas of the block. The maximum natural flow rate (unstabilised) achieved in a Thumbli test has been 1585 bopd of 36 degree API oil in Raageshwari-3. Recent wells, such as Raageshwari-6, which tested 550 bopd and 5 mmscfd, have confirmed the producing potential of this formation which is a target for future exploration and appraisal activity.

•Dharvi Dungar formation

The Dharvi Dungar is present in the central basin area and to date has only been targeted by a few wells. The original Rajasthan discovery well, Guda-2, tested 2,000 bopd of 38 degree API oil under natural flow, from the Dharvi Dungar.

•Barmer Hill formation

The Barmer Hill is a tight siltstone in the north of the block where discoveries have yet to be evaluated. The relatively poor reservoir characteristics mean that stimulation by fraccing will be required. In the central area the Barmer Hill in Saraswati-1 has produced 62,000 bbls over two long term tests totalling 70 days.

Development of the southern area fields will typically require a high density of wells, but with the potential for rapid payback of development expenditure. Plans are being developed to advance production in the southern fields during 2006 via a trucking operation.

Since the last operational update in June 2005 a number of exploration and appraisal wells have been drilled across the basin. A new small Fatehgarh discovery has been made in the north near the existing Shakti field. The recent appraisal drilling and testing activity has concentrated in the southern area in and around the Raageshwari Guda and GR-F discoveries.

An 18 month extension of the exploration licence in the northern area was granted in May 2005. A 3D seismic crew is continually active in parts of the block.

Rajasthan - Development

The final draft of the Field Development Plans for the Mangala, Aishwariya, Saraswati and Raageshwari fields is scheduled for submission in August 2005 to our joint venture partners ONGC for a final review, after which they will be submitted to the Government of India for approval.

The front-end engineering design (FEED) for the Mangala field development is largely complete and the selection process for the detailed engineering design contractor is underway.

The Declaration of Commerciality for the Bhagyam and Shakti discoveries, which is the first step before the preparation and submission of the Field Development Plan, has been submitted to our joint venture partners ONGC for review. It is planned that the development of these discoveries will be integrated with the development of the Mangala and Aishwariya discoveries.

Under the terms of the Rajasthan Production Sharing Contract (PSC), the Government of India is in the process of appointing its nominee to take delivery of the oil produced from these discoveries.


Following successful in-fill drilling campaigns on the Lakshmi (offshore north-west India) and Sangu (offshore Bangladesh) gas fields, the group's entitlement production for the first six months of 2005 was 27,900 barrels of oil equivalent per day (boepd) net to Cairn. Full year entitlement production for 2004 was 22,789 boepd. Current production is in line with the company's expectations.

Production boepd     Ravva    Sangu       Lakshmi & Gauri                Total
Gross field          65,000      23,000                   15,000       103,000
Working interest     14,625      17,250                    6,750        38,625
Entitlement interest  6,900      13,500                    7,500        27,900

Due to the Group's current production mix being heavily gas biased and the existence of contractual caps on the price received for this gas, the average price realised for the six months to June 30, 2005 is expected to be in the region of $24 per boe (2004 $24.06).

Elsewhere in India and South Asia

In the deepwater block of the K-G basin off the east coast of India, partially farmed out to ONGC, a three well drilling programme is planned. Cairn has retained a ten percent interest in this block.

The results of bidding for new exploration blocks in India are expected to be announced around the end of July. This fifth exploration round has attracted a high level of international interest in India with very competitive bidding.

Bill Gammell, Chief Executive of Cairn said:

'Cairn is now moving rapidly from discovery to production in Rajasthan. As we continue exploration and appraisal, it is very clear that this basin will not only provide substantial oil production and cash flow from the large northern fields but will also provide future growth and re-investment potential for Cairn from other reservoirs and smaller fields, both discovered and yet to be discovered.'