In 2008, Cairn has focused on allocating its resources to those assets which will drive shareholder value. At 31 December 2008 Cairn had net cash of $898m, positive operating cash flows and net assets of $2.3bn.
The Group’s existing cash resources, debt facilities and cash flow from operations provide adequate funding to complete the core Mangala development project plus the pipeline and to commence first production in 2009. However, Cairn will continue to monitor the credit markets to assess current pricing and may consider expanding its facilities in due course.
Cairn has always maintained a capital structure appropriate for its operations in exploration, appraisal and development. Given the background of global market conditions Cairn decided to strengthen its equity capital base and earlier this month raised a further $161m through a 5% placing of shares.
HIGHLIGHTS
Operational
• Group booked entitlement reserves increased from 170.2 mmboe to 254.5 mmboe
• Gross operated production for 2008: 76,298 boepd (2007: 87,031 boepd)
• Average net entitlement production for 2008: 12,801 boepd (2007: 19,809 boepd)
India
• Phased Mangala, Bhagyam and Aishwariya (MBA) development project on track and funded to deliver first oil from the core Mangala development during H2 2009
• Construction of Mangala Processing Terminal (MPT) underway with four processing trains planned with a nameplate capacity of 205,000 bopd with scope for expansion
• Four processing trains:
• Q3 2009: Mangala production train 1 (30,000 bopd capacity), initial export by trucking
• Q4 2009: Mangala production train 2 (50,000 bopd capacity), export by pipeline
• H1 2010: Mangala production train 3 (50,000 bopd capacity), providing for 125,000 bopd Mangala plateau production
• 2011: Production train 4 (75,000 bopd capacity), providing for 175,000 bopd Rajasthan plateau production.
• Aishwariya production potential upgraded from 10,000 bopd to 20,000 bopd, subject to regulatory approval
• More than 3,000 km2 of acreage secured under long term development contract
• Raageshwari East well, 90 km south of Mangala, flowed 500 bopd on test
Greenland
• Leading material frontier exploration position offshore west and south Greenland
• Processing of 10,000 km of 2D seismic data almost complete
• Additional seismic and well site surveys planned for summer 2009
Financial
• Cairn placing raised $161m
• Profit after tax of $367m including $356m exceptional gain on 4% placement of shares in Cairn India Limited (CIL) (2007 restated: $1,556m including $1,539m exceptional gain on IPO of CIL)
• Cash generated from operations $150m (2007: $155m )
• Group net cash at 31 December 2008 $898m ( 2007: $827m)
Sir Bill Gammell, Chief Executive said:
"Cairn’s Rajasthan development continues to grow in scope and scale as we approach first oil production in the second half of 2009.
The Mangala terminal includes the phased construction of four planned processing trains with a combined production capacity of 205,000 bopd and potential for expansion.
We have established a material frontier exploration position offshore west and south Greenland with 72,000 km2 under licence and the company continues to examine options for early drilling."
Group Production
Cairn’s average gross production during 2008 was 76,298 barrels of oil equivalent per day (boepd) (2007: 87,031 boepd). The Group’s average entitlement production for 2008 was 12,801 boepd net to Cairn (2007:19,809 boepd). The figures below show group production for 2008 on a gross, working interest and entitlement interest basis (including 100% of both CIL’s and Capricorn’s production).
Production (boepd)
Ravva
Gross field: 53,809
Working interest: 12,107
Entitlement interest: 5,711
CB/OS-2
Gross field: 13,778
Working interest: 5,511
Entitlement interest: 4,478
Total 2,612
Sangu
Gross field: 8,711
Working interest: 5,511
Entitlement interest: 2,612
Total
Gross field: 76,298
Working interest: 20,885
Entitlement interest: 12,801
The average realised price per barrel of oil equivalent for 2008 was $63.88 (2007: $39.70). Cairn’s current entitlement interest production is 46% gas: 54% oil. On commencement of production from Rajasthan the vast majority of the Group’s production will be oil.
Group Booked 2P Reserves
The informationbelow shows reserves information at 31 December 2008 on an entitlement interest basis for the Group (including 100% of both CIL’s and Capricorn’s reserves). For accounting and reserves purposes, the Group has used an oil price assumption of $50/bbl for 2009 and $65 for 2010 onwards (real) (2007: $60/bbl (real)).
Reserves at 31.12.07 (mmboe)
India: 169.4
Bangladesh: 0.8
Total: 170.2
Produced in mmboe
India: (3.7)
Bangladesh: (1.0)
Total: (4.7)
Additions in mmboe
India: 65.9
Bangladesh: -
Total: 65.9
Revisions in mmboe
India: 21.3
Bangladesh: 1.8
Total: 23.1
On a direct working interest basis, 2P reserves as at 31 December 2008 have increased by 92.7 mmboe to 348.0 mmboe (31 December 2007: 255.3 mmboe), comprising 346.0 mmboe in India and 2.0 mmboe in Bangladesh. The net entitlement reserves position has also increased by 84.3 mmboe from 170.2 to 254.5 mmboe. This increase is largely due to the booking of Bhagyam and Aishwariya 2P reserves. It also includes an increase in the entitlement to Mangala oil as a result of the increase of plateau offtake rate and the inclusion of pipeline costs following the GoI approval to the moving of the delivery point to the coast. There is also a reduction as a consequence of a change in the Group’s oil price assumption.
India Reserves
With approved Field Development Plans (FDPs) in place for the Mangala, Saraswati, Raageshwari, Bhagyam and Aishwariya fields, net entitlement 2P reserves totalling 240.5 mmboe have been booked for the Rajasthan fields at the 2008 year end. There is a further 12.4 mmboe 2P reserves in the Lakshmi, Gauri and Ravva fields at the year end.
Bangladesh Reserves
The net entitlement 2P reserves for Sangu are 1.6 mmboe at the 2008 year end, compared to 0.8 mmboe at the 2007 year end. The increase has resulted from better than forecast production from a number of wells, well intervention work in Q4 2008 and incremental recovery associated with installation of onshore compression, which is due to commence operation in Q3 2009. A reduction in forecast operating costs has also extended the expected field life. Sangu net entitlement 2P reserves now represent around 0.6% of total booked Group reserves.
Overview of Operations
Cairn India
Rajasthan (Block RJ-ON-90/1) (Cairn India 70% (Operator); ONGC 30%)
Cairn and its JV partner ONGC now have 3,111 km2 under long term contract on the Rajasthan licence of which the main field development area covers 1,859 km2. The Bhagyam and Kameshwari development areas cover 430 km2 and 822 km2 respectively.
The phased integrated development plan for the block, which includes gas, water and pipeline operations, is focused on the Mangala field with the MPT the hub through which all facilities will be connected.
Development - Upstream
In readiness for production in Q3 2009 good progress is being made in the development of the MPT with more than 6,000 workers currently involved in upstream construction activities in Rajasthan.
The well pads to enable first production have been completed and development drilling is well underway with two multi purpose mobile drilling rigs at the Mangala site. The work over rig to complete the wells is also on site. The wells drilled to date support the ramp up production profile for the Mangala field.
Construction of the key facilities and related infrastructure in readiness for the Q3 start is making good progress with all of the key elements to enable production from the MPT now in an advanced stage of preparation. These include key features such as well pads, in-field infrastructure, processing facilities, export facilities and power generation and utilities.
The overall development includes the construction of four planned processing trains with a capacity of 205,000 bopd and scope for expansion:
- Q3 2009: Mangala production train 1 (30,000 bopd capacity), initial export by trucking
- Q4 2009: Mangala production train 2 (50,000 bopd capacity), export by pipeline
- H1 2010: Mangala production train 3 (50,000 bopd capacity), providing for 125,000 bopd Mangala plateau production
- 2011: Production train 4 (75,000 bopd capacity), providing for 175,000 bopd Rajasthan plateau production
Cairn has been able to significantly enhance the reserves, stock tank oil initially in place (STOIIP) and production rates since the original FDP was approved by the GoI in 2006. The key features of the revised Mangala FDP submitted in 2008 and which is now with GoI for approval are:
- A 25% increase in the plateau production rate to 125,000 bopd
- Upward revision of the 2P (P50) STOIIP to 1,293 mmbbls, an increase of more than 20% over the earlier estimated figures
- A 30% increase in the expected ultimate recovery over previous estimates to ~476 mmbbls (a recovery factor of around 37% of 2P STOIIP)
The revised FDP was submitted following further drilling in the development area, along with extensive subsurface and detailed design and engineering studies.
The front end engineering design for Bhagyam has been completed. The Aishwariya STOIIP has increased to 290 mmbbls. The estimated increased 2P reserves is 64 mmboe supporting a plateau production of 20,000 bopd compared to the 10,000 bopd plan approved in 2006. These estimates are subject to regulatory and partner approvals and the implementation of a revised FDP.
Development - Pipeline (Cairn India 70% (Operator) ONGC 30%)
Construction of the ~600 km insulated and heated pipeline is well underway with more than 4,000 personnel involved in the building of the facilities including the terminals.
Approval under Right of Use (ROU) has been obtained in principle from the GoI for the entire length of the pipeline from Barmer to the Gujarat coast. The land for all the above ground installations and the terminals at Viramgam, Radhanpur and the Gujarat coast has been acquired.
The pipeline route through Rajasthan and Gujarat passes through eight districts and more than 250 villages. There are also 35 heating stations under construction along the length of the pipeline plus a terminal at Viramgam, which will function as both a storage and pump station with the ability to distribute to refiners.
Currently there are nine pipeline laying spreads deployed in Gujarat and Rajasthan. To date ~215 km of pipeline has been constructed and lowered.
The pipeline route has ~600 crossings of various types (rivers, roads, rail etc) with all the necessary approvals from the respective statutory authorities in place. In total there are 59 cased crossings of which 36 have been completed with construction underway on seven additional cased crossings.
Construction at the Viramgam terminal is well advanced, with all storage tanks and the main building superstructures nearing completion. The manufacture and delivery of all long lead items are in the final stages of completion and are well in advance of the dates they are required on site to support construction.
Rajasthan - Sales
India currently imports more than two million bopd against a domestic production of 700,000 bopd. The Indian refining sector is growing rapidly and demand for crude oil is expected to increase.
Following final GoI approvals, the route of the Rajasthan pipeline allows access to an existing pipeline infrastructure, with a final coastal delivery point that will afford access to the majority of India’s refining capacity.
The oil from Rajasthan is categorised as medium sweet crude with an average API of 280. The viscosity and pour point are relatively high, but normal for crude generated from this type of onshore lacustrine source rock. The oil must however be kept warm during transportation.
Prior to first production via the pipeline the crude from the MPT will be trucked to the Gujarat coast. The GoI has nominated Mangalore Refinery and Petrochemicals Limited (MRPL) as purchaser of the crude and is in the process of confirming additional nominees. Currently, Cairn India’s focus is to complete arrangements for crude oil sales in Q3 2009.
In order to facilitate the trucking and sale of oil ahead of the pipeline completion trial runs have been successfully carried out on the route from Mangala to the Gujarat coast.
Kameshwari Development Area (Cairn India 100%)
During 2008 the GoI approved the three discoveries made in Kameshwari West 2, 3 and 6 and the new Development Area of 822 km2.
Enhanced Oil Recovery (EOR)
Cairn has made 25 discoveries in the RJ-ON-90/1 block to date and has established a significant growing resource base in the Barmer basin, currently estimated at around 3.7 billion barrels of oil in place. Cairn continues its efforts to develop this resource base through the application of appropriate cost efficient technologies. The initial focus has been to develop the MBA fields which contain over two billion barrels in place in the Fatehgarh reservoirs, through primary and secondary recovery schemes.
Cairn continues its efforts on the staged and early application of aqueous-based chemical flooding EOR techniques in the MBA fields. Early application of chemical flooding EOR in these fields would be designed to increase the overall recovery from the fields, extend their crude oil production plateau periods, reduce water production, mitigate future decline rates and potentially accelerate crude oil production. Cairn is actively planning to conduct an EOR pilot trial in the Mangala field following very encouraging results obtained from the laboratory and simulation studies. The current assessment of the EOR resource base is more than 300 mmbbls of incremental recoverable oil from the MBA fields.
In addition Cairn continues to evaluate the resources and the development options of the other discoveries, of which the Barmer Hill formation over the Mangala and Aishwariya fields contains around 400 mmbbls of oil in place in tighter reservoir rocks (lower permeabilities). This reservoir has tested oil at rates of up to 250 bopd after stimulation. Analogous fields in the world have been developed with expected ultimate recoveries of 7-20% under primary and secondary recovery schemes. Cairn is planning to conduct pilot activities to evaluate this additional resource potential and associated development options.
Cairn will also continue to consider low cost development options for the smaller fields through the use of cost effective technologies and by leveraging the existing infrastructure.
Cairn India - Producing Assets
Average gross production from Block CB/OS-2 for 2008 was 13,778 boepd (comprising average gas production of 39 million standard cubic feet of gas per day (mmscfd) and average oil/condensate production of 7,228 bopd).
Oil production has increased from the new wells that were added during the 2008 infill well development drilling campaign.
Krishna-Godavari Basin - Eastern India
Ravva (Cairn India 22.5% (Operator)
Average gross production from the Ravva field for 2008 was 53,809 boepd (comprising average oil production of 41,999 bopd and average gas production of 71 mmscfd).
Production at Ravva is being sustained with the contribution from new wells and successful workovers that were conducted in the 2008 drilling campaign. Further studies are continuing to identify additional in place reserves within the field.
Three new infield subsea pipelines have been installed to overcome pipeline capacity bottlenecks and the commissioning of these pipelines is ongoing to aid production from the field.
Cairn India - Exploration
During 2008 Cairn India operated four of seven wells in which it participated, three of which were successful:
- The RB-4 well in Ravva encountered additional oil sands that were later put on stream at 500 bopd through the Ravva production facilities.
- Raageshwari East-1 in Rajasthan flowed 500 bopd and 0.4 mmscfd on test from Thumbli sands in a separate oil accumulation adjacent to the Raageshwari field.
- The Mangala North-1 well extended the contingent resource in the Barmer Hill Formation for the Mangala field.
Two wells were drilled in CB-ONN-2002/1 and one in each of GV-ONN-2002/1 and GV-ONN-97/1, all of which were dry.
Seismic acquisition included both 2D and 3D seismic in blocks KG-ONN-2003/1, GV-ONN-2003/1 and 2D in block VN-ONN-2003/1. A marine 2D seismic survey was also completed in block KK-DWN-2004/1 in 2008.
Over the next 12 months further drilling and seismic programmes are planned. Drilling is scheduled onshore in the KG basin, with acquisition of 3D seismic totalling 1,800 km2 to commence offshore India and in Sri Lanka.
Capricorn
Capricorn continues to build an asset base for exploration led growth and has strengthened its exploration portfolio by building its acreage position in Greenland throughout 2008.
Capricorn now has assets in South Asia (Northern India, Bangladesh and Nepal), Greenland, the Mediterranean (Tunisia, Albania and pending licence awards in Spain) and Papua New Guinea.
Greenland
Capricorn has acquired a leading frontier exploration position offshore west and south Greenland.
The prospective geological basins around the coast of Greenland are at a very early stage of evaluation with only six offshore and one onshore exploration well having been drilled to date, and most of those during the 1970s. However, the results of these wells, together with more recent onshore geological mapping over the past 15 years, have confirmed the presence of all the essential elements required for the generation and trapping of hydrocarbons.
The Circum-Arctic Resource Appraisal study published by the United States Geological Survey (USGS) in 2008 estimates significant “yet to find” hydrocarbons within the Arctic Greenlandic basins, recognising Greenland as a potentially very prospective, but under- explored country.
The report contains the USGS assessment of risked potential in the eastern Greenland (31 billion boe)), northern Greenland (3.3 billion boe) and western Greenland – east Canada (17 billion boe) basins. The south Greenland offshore area lies outside of the Arctic Circle and was not included in the survey.
The Greenlandic and Danish authorities are in the process of gradually opening up the Arctic areas of these basins to the industry through competitive bid rounds, whilst other selected areas are available via application.
During 2008, Capricorn completed its obligation seismic work programme for the first licence phase over all six of its operated licences. A 6,600 km 2D seismic survey was acquired in the Disko West blocks Sigguk and Eqqua, followed by the acquisition of a further 1,200 km 2D seismic survey in the southern Kingittoq and Saqqamuit blocks and around 1,780 km of 2D seismic data over the Salliit and Uummannarsuaq blocks (Cape Farewell 1 & 2). Processing of all the collected data is nearing completion.
A Controlled Source Electromagnetic Survey (CSEM) was also acquired in 2008 over the Lady Franklin and Atammik blocks operated by EnCana and the data is currently being evaluated.
Additional seismic and well site surveys are being planned for the 2009 operational season.
Bangladesh
Production and Development
In 2008, the Sangu gas field passed a landmark of 10 years on production, during which time it has consistently demonstrated an enviable record for safety and low cost production. The field is now in decline and during the year, Cairn and its JV partners successfully completed three well intervention programmes and committed to a compression project which is currently being implemented. These measures will help to increase and extend production.
The third well intervention programme carried out on wells 1 and 9 in the Sangu field resulted in an initial 60% improvement in production, and rates are now around 55 mmscfd.
To augment further gas production from Sangu the installation of an onshore compressor is under way and is expected to be operational by July 2009.
Sangu has produced in excess of 440 bcf since production started in 1998. Located in the Bay of Bengal, some 50 km off the coast at Chittagong, the field is the only offshore gas field in Bangladesh. Sangu was one of the largest discoveries in the 1990s, when Cairn was one of the first international companies to start operating in the country. To date, Cairn and its JV partners have invested approximately $1 bn in Bangladesh.
The JV partners in the Sangu field are currently Cairn, Santos and HBR Energy.
Exploration
Following the drilling campaign at Magnama and Hatia earlier in 2008, there have been no further operations in Block 16 and an appraisal programme is being considered.
In Block 5 Cairn and its JV Partner Santos have decided not to proceed into the next phase of the PSC and the block has therefore been returned to the Government of Bangladesh.
Nepal
The security situation in Nepal continues to be monitored closely. Contractual force majeure remains in place on the acreage in Nepal, precluding in-country operations. As soon as the security situation permits, fieldwork will include aerogravity and seismic acquisition.
Other Assets (Tunisia, Albania, Australia, Peru, Spain, Papua New Guinea)
In the Mediterranean, site surveys have been carried out in Tunisia for exploration well locations in both the Louza and Nabeul permits.
An environmental impact assessment is presently underway offshore Albania ahead of a planned 2009 3D seismic survey.
Several licence applications offshore Spain remain pending. As a result of an ongoing rationalisation programme, the exploration permits inherited from Plectrum in Australia (Bremer Basin), Peru and The Shetlands have been either transferred or relinquished.
In Papua New Guinea the Operator (Talisman) has recently completed a 3D seismic survey over the undeveloped Pandora gas field to define better the extent of the gas resource.
Source : OilVoice
