Cairn Pleased with 2005 Growth
"The Board is delighted that Cairn experienced another year of exceptional growth and further evolution in 2005. In particular, the exploration and development of the world class Rajasthan asset in northwest India continued apace.
As part of the natural transition of the business towards increased autonomy in India, the Company continues to examine and progress a partial initial public offering (IPO) of the Indian exploration and production (E&P) business on the Bombay Stock Exchange.
Before giving a brief review of the Group's activities in both 2005 and 2006 to date, I wish to highlight specific events which have occurred since the Preliminary Results were reported in March, namely:
- The appointment of a Chief Executive Officer to take forward the Indian business and its IPO.
- First oil from the Mangala field in Rajasthan is scheduled to commence in approximately 30 months following Field Development Plan (FDP) approval and project sanction by the Cairn Board.
- A new oil discovery in Rajasthan.
- The commencement of a hydraulic fracture stimulation program in Rajasthan which although at the very early stages, is already highlighting possible new reserves.
With the continuing success in the northern fields in Rajasthan and the growing resource base, we believe the time is right ahead of first oil from Mangala to progress the creation of two world class businesses, one based in the United Kingdom and one in India.
To this end, I am pleased to announce that we have appointed Rahul Dhir to be Chief Executive Officer of the new Indian business, which subject to market conditions Cairn is aiming to list through an IPO on the Bombay Stock Exchange in the last quarter of 2006 or early 2007. Rahul Dhir will join Cairn in May from Merrill Lynch where he is currently a Managing Director and co-head of Energy and Power Investment Banking. A separate announcement on this appointment has been released today.
Development Rajasthan, India
During 2005, Cairn continued with its evaluation and pre-development of the Mangala field, the largest oil discovery in India for more than two decades, against a backdrop of India emerging as an area of world focus for future industry activity and investment. Our estimate of the Rajasthan 2P reserve and contingent resource base for the three main northern fields; Mangala, Bhagyam and Aishwariya, has grown significantly and is now around 800 million barrels (mmbbls) of oil. At current oil prices, the Rajasthan fields are capable of generating many billions of dollars of revenue over the life of the project for stakeholders, including the Government of India (GoI).
The FDPs for the Mangala, Aishwariya, Saraswati and Raageshwari fields have been agreed by the joint venture Operating Committee (OC) and are awaiting final GoI approval. These approvals are a precursor to formal sanctioning of the development project by the Cairn Board. The Bhagyam FDP is currently being prepared for submission to the joint venture and to the GoI.
The present focus is to bring Mangala on stream at the earliest opportunity followed by Bhagyam and Aishwariya. First oil from the Mangala field in Rajasthan is scheduled to commence in approximately 30 months following Field Development Plan (FDP) approval and project sanction by the Cairn Board. First oil from Bhagyam and Aishwariya is targeted to commence a year after Mangala.
The initial development investment for Mangala and Raageshwari gas by the joint venture to first production is estimated to be in the region of $800 million and we are on track to have financing in place to fund our share of the project. Credit approval from all the relevant banks has been requested during May and formal signing of the facility is planned in June 2006.
Appraisal Rajasthan, India
In a little over two years since discovering the world class Mangala field, we have conducted an extensive exploration program across the basin which has primarily targeted prospects with structural traps. We now believe that there is in excess of 3.5 billion barrels of oil in place within our acreage and the resource base continues to grow.
Today we can announce a further discovery in Rajasthan which is the 18th on the block. The N-P exploratory well drilled on the flank of the Barmer airfield high structure has encountered 16 meters of log evaluated oil bearing Fatehgarh sands. The surface location for this first vertical well was two kilometers (km) within the extended Development Area and 6.4 km south east of the N-E-1 discovery. At this stage, the updip potential and associated oil in place volumes are uncertain. An appraisal drilling program, commencing with a sidetrack well which will be cored, is required before determining the significance of this discovery.
An exploratory well on the NX structure was dry.
An extensive 3D seismic program is to commence in May 2006 in the Appraisal area to the south of the Barmer airbase. The survey will be acquired in phases to allow processing, interpretation and follow on drilling prior to the present November 2006 deadline for completion of activities in this area. An application to extend the appraisal time period in this area for a further six months has been made.
An extensive program of hydraulic fracture stimulation (fraccing) has recently commenced on the acreage. Early results on the Raaageshwari deep gas accumulation from a single tested zone in Raageshwari-5 indicate a two fold increase in productivity.
The first frac test on the Barmer Hill formation at Mangala was conducted on the Mangala-6 well and resulted in up to 150 bopd flowing to surface. Test production using a pump is planned. This is a very encouraging early result as it indicates the potential for reserves addition from the Barmer Hill formation where the in place volumes are considered to be large. The Mangala Barmer Hill formation will be further evaluated during the main phase of development drilling for the highly productive Fatehgarh reservoir. The next Barmer Hill formation well stimulation by fraccing will take place at Aishwariya.
Appraisal drilling activity in the next few months is to be focused on the N-P oil and GSV gas discoveries and nearby prospects.
Operations Elsewhere in India, Bangladesh and Nepal
The deep drilling rig Cairn has been using in its Rajasthan program is being mobilised to drill two exploration prospects on the onshore part of the Ravva contract area. Operations are expected to commence in June 2006. In the light of recent and nearby discoveries by other operators, the exploration potential of the Cretaceous formations at Ravva is being reviewed.
A development infill program at Ravva of four to five wells is planned commencing August 2006 using a Cairn contracted drilling rig. This activity is designed to extend the Ravva plateau production period.
In the KG Basin, deep water block KG-DWN-98/2 (Cairn 10%), the fourth exploration well in the current six well program, discovered modest quantities of gas and current operations continue on the fifth well. The large ultra deep water prospect in the south of the block has been reviewed with ONGC with the possibility that this will be drilled as a seventh exploration well prior to September 2006.
The Tisua exploration well (Cairn 30%) on block GV-ONN-97/1 in the Himalayan Foreland Basin is expected to spud at the end of April. Two other non-operated exploration wells are also planned during the summer of this year on block CB-ONN-2001/1 in the Cambay Basin (Cairn 30%).
In Bangladesh, we are planning an infill drilling campaign for Sangu along with an appraisal well in South Sangu and at least one exploration well during the winter of 2006/2007. The Government of Bangladesh has recently granted formal approval for Cairn's participation (45%) in Block 7 which is operated by Chevron (formerly Unocal). A 2D seismic survey is presently being acquired over this block.
Despite invoking contractual Force Majeure on the Nepalese blocks in August 2005, in view of the present security troubles, Cairn held a joint review meeting in Kathmandu with Government officials during March 2006 to discuss the results of ongoing technical studies.
Indian Exploration Bid Round (NELP-VI)
For more than ten years India has been a focus for Cairn. The NELP-VI (New Exploration Licensing Policy) bid round is currently underway with GoI road show presentations taking place around the world. Cairn has been involved in a number of these presentations.
The company expects to be an active participant in the bidding for some of the 55 blocks that are on offer. The closing date for bids is set for 15th September 2006 with the announcement of awards by the GoI expected in December 2006.
Preparing the business for an IPO will represent a challenging time for staff across the Group and I would like to place on record my thanks and appreciation for the commitment and dedication all employees have shown since the company made the IPO announcement in March.
I am also pleased to announce that Group General Manager and Board Director, Malcolm Thoms, has been appointed Chief Operating Officer.
The new financing and the strength of our balance sheet will enable us to move forward on the key projects in Rajasthan while maintaining an active exploration and drilling program providing potential for further growth across South Asia.
The future offers us challenges and opportunities and we always work in a spirit of partnership and co-operation with Governments and our joint venture partners. Cairn has a clear and consistent strategy and, with the growing industry and investment interest in South Asia, has an optimal opportunity to capitalize on its competitive edge through a proposed partial IPO of its Indian business."
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