Cairn Reports on 1Q Results, Anticipates Rajasthan Production
The following commentary is provided in respect of the unaudited financial results and operational achievements of Cairn India Limited and its subsidiary companies (referred to as "Cairn India") during the first quarter of 2009-10. Please note that the fiscal year 2009-10 (FY 09-10) refers to the period April 2009 - March 2010.
- Revised Mangala Field Development Plan including pipeline and higher processing capacity of 205,000 bopd approved by the Government of India Management Committee
- The commercial terms and pricing negotiations for the initial offtake of the Rajasthan crude have been concluded with GoI nominees, IOC and MRPL. 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 a 10-15% discount to Brent on the basis of prices prevailing for the six months to June 2009. This pricing is subject to GoI approval
- 28 Mangala development wells drilled to date of which 16 completed
- Train one facilities and trucking logistics are complete and ready. Cairn is working with the Government authorities to start production from the Mangala field in Rajasthan in August 2009
- Construction on Train two (50,000 bopd) and the pipeline is targeted for completion by the end of 2009. Weather and other factors continue to pose schedule risks. Cairn and its major contractor, Larsen and Toubro, are working to mitigate these risks
- Train three (50,000 bopd) which will follow Train two is progressing on target to attain Mangala plateau production of 125,000 bopd by H1 2010
- Further studies being conducted in Ravva to identify additional resources and bypassed oil
- CB/OS-2 average gross production increased to 14,506 barrels of oil equivalent per day
- Work initiated for seismic activities in Sri Lanka and the Palar basin
- Profit after tax of Indian rupees INR 454 million (US $9.3 million)
- Gross cumulative Rajasthan development capex spent to date US $1.6 billion, out of which US $267 million was spent during the quarter
- The gross production of the operating units was 59,461 boepd in Q1 2009-10 (71,082 boepd in corresponding quarter of previous year) and the working interest production was 15,917 boepd in Q1 2009-10 (18,764 boepd in corresponding quarter of 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 1,170 million (US $24 million) for Q1 2009-10 as compared with INR 2,509 million (US $60 million) for corresponding quarter of previous year.
Cash (net of borrowings) available as at June 30, 2009 was INR 9,976 million (US $208 million).
The consolidated revenue of Cairn India for Q1 2009-10 was INR 2,049 million (US $42 million) as compared with INR 4,036 million (US $97 million) for corresponding quarter of previous year.
The average oil price realization in Q1 2009-10 was US $60.2/bbl and for corresponding quarter of previous year was US $125.9/bbl. The gas price realisation in Q1 2009-10 was US $4.0/mscf and for corresponding quarter previous year was US $4.3/mscf.
Average price realization per boe was US $51.2 in Q1 2009-10 and for corresponding quarter of previous year was US $95.2.
An exceptional provision of INR 1637 million (US $34.2 million) has been made, on a conservative basis, in respect of amount deducted by the buyers and remitted to the GoI pursuant to its directive to recover profit petroleum of earlier years in relation to "ONGC Carry" case. The matter is currently under appeal at a higher court.
The consolidated profit before tax for Q1 2009-10 was INR 244 million (US $5 million) as compared to INR 2,196 million (US $53 million) for the corresponding quarter of previous year.
The consolidated profit after provision for tax (including deferred tax and Fringe Benefit Tax (FBT)) for Q1 2009-10 was INR 454 million (US $9 million) as compared to INR 1,386 million (US $33 million) for the corresponding quarter of previous year.
Tax (including current tax and deferred tax) is calculated at entity level and not on a consolidated basis; losses arising within one jurisdiction are not available for offset against profit arising in another.
Amounts shown in USD are converted based on average exchange rate for the Q1 2009-10 of INR 48.71 for revenue items and at the closing exchange rate as on June 30, 2009 of INR 47.87 in respect of cash balance (average rate of corresponding quarter of previous year was INR 41.65).
Rahul Dhir, Managing Director and Chief Executive Officer, Cairn India said, "The start of oil production from Rajasthan will be a major milestone for Cairn India and we are working with the central and state governments in India to ensure this project of national importance starts in August 2009.
"We are pleased to have concluded pricing negotiations with MRPL and IOC for the initial quantities of crude from Rajasthan which currently represents a 10 to 15 percent discount to Brent.
"With continued investment in its potential I firmly believe the Rajasthan Barmer basin has the ability to deliver long term value growth for stakeholders."
Gross operated production for the first quarter was 59,461 boepd (working interest 15,917 boepd).
Rajasthan (Block RJ-ON-90/1) (Cairn India 70% (Operator); ONGC 30%)
The revised Mangala Field Development Plan incorporating an increased offtake to 125,000 bopd for Mangala, higher processing capacity of 205,000 bopd for Mangala Processing Terminal (MPT) and pipeline to the Gujarat coast has been approved by the GoI, MC (Cairn, ONGC and the Director General Hydrocarbons). Cairn India and its JV partner ONGC have an area of 3,111 km2 under long term contract on the Rajasthan license.
Approximately 11,000 people are currently involved in the construction of both the upstream and midstream projects.
Development -- Upstream
The facilities at Train one of the MPT are complete and ready to start production. The crude will be initially evacuated via trucking in August 2009.
All of the key elements at the Mangala Processing Terminal (MPT) to enable production from Trains two and three are progressing. Work on the well pads, the Raageshwari gas terminal, the Thumbli water field, in-field pipelines, processing facilities, buildings, power generation and associated utilities are well advanced. The construction of Trains two and three at the MPT with a combined capacity of 100,000 bopd is targeted to attain Mangala plateau production of 125,000 bopd by H1 2010.
Development drilling and well completion activities are currently underway with two drilling rigs and one completion rig operating in the Mangala development area. To date 28 wells have been drilled of which 16 wells have been completed and made ready for initial production. The wells drilled to date will support the ramp up production profile for the Mangala field.
Exploration - RJ-ON-90/1 (Cairn India is the Operator - 70% holding in the Mangala and Bhagyam Development Areas and a 100% holding in the new Kaameshwari West Development Area)
Cairn India continues to see significant potential in the Rajasthan block. The Company is planning further appraisal drilling of up to three wells.
A significant new oil discovery was made through the Raageshwari East 1z well located in the east of the Raageshwari field. This discovery resulted in a more than doubling of the size of the prospective resources in the Raageshwari area and preparatory work is ongoing for the drilling of appraisal wells and further exploration activities. The Declaration of Commerciality (DoC) for the Northern Appraisal Area was approved by the MC, creating the new 822 km² Kaameshwari West Development Area. The Kaameshwari FDP has been submitted to the MC for review and approval.
Cairn India -- Producing Assets
The average crude oil price realization this quarter was US $60.2/bbl and the average gas price was US $4.0/mscf resulting in an average price realization of US $51.2/boe.
Krishna-Godavari Basin -- Eastern India
Ravva (Cairn India 22.5% (Operator))
Average gross production from the Ravva field for Q1 was 44,954 boepd (comprising an average oil production of 36,558 bopd and average gas production of 50.38 mmscfd).
Production at the Ravva field is being sustained through continuous reservoir and well management. Further studies are being conducted to identify additional in place reserves and bypassed oil zones within the field.
Of the three new in-field sub sea pipelines being installed to overcome pipeline capacity bottlenecks, two have been commissioned.
Cambay Basin -- Western India
Block CB/OS-2: (Cairn India 40% (Operator))
Average gross production from Block CB/OS-2 for Q1 was 14,506 boepd (comprising an average oil / condensate production of 9,945 bopd and average gas production of 27.37 mmscfd).
As an outcome of the workover activities and upgrading of the crude evacuation facilities, the production from the block has significantly increased.
Cairn India -- Exploration -- Other Assets
At present, Cairn India has exploration interests in 13 blocks held across India and Sri Lanka nine of which are operated by the Company. These blocks are located in the Krishna-Godavari Basin, the Palar Basin, Kerala Konkan Basin, Cambay Basin, Gujarat Saurashtra Basin, Barmer Basin, Indus Basin, Vindhyan Basin, Ganga Valley and the Mannar Basin offshore Sri Lanka.
Exploration and appraisal activity in 2009 included the drilling of one well in Block RJ-ONN-2003/1 operated by Eni. This well was plugged and abandoned as a dry hole in May 2009.
The 2009-10 exploration program includes the drilling of 6-10 wells. Additionally, the Company has begun preliminary work for 3D seismic surveys in the Mannar (Sri Lanka) and Palar basins. The new seismic acquisition positions Cairn India for an extensive drilling programme in 2010-11.
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