01 April 2009

Cairn to start oil production in Sep

Cairn to start oil production in Sep

airn Energy Plc - the UK based parent of Cairn India - reiterated its commitment to commence the commercial production of crude oil from

its Rajasthan fields from September 2009, when it published its results for year 2008 on 31st March 2009. Although the group will be spending more by way of capital expenditure in 2009 compared to the last year, it will cut down on its capex in other countries to focus on India

"The focus in 2009 is delivering production in Rajasthan on schedule and agreeing sales contracts with the buyers for its crude oil," mentioned Norman Murray, the chairman of the group in a press note. He further added, "Once Mangala is on stream, it will generate revenues, which will be used initially to invest in further development work and to pay down debt."

Cairn plans to spend nearly $970 million in 2009 on its India operations with an estimated $900 million represented by the Rajasthan development project. This is 58% higher compared to $614 million that the group spent in 2008 for its India operations. On the other hand, the group's capex in other countries is set to fall by 21.5% in 2009 to $62 million from $79 million of last year. The largest portion of this capex will be spent on exploration activities as against the field development activities in India.

"The size and scope of Rajasthan fields has substantially increased since the original Managala discovery in 2004 when peak production was forecast at 100,000 bpd. Today the facilities being set up will include phased construction of four processing trains with a capacity of 205,000 bpd with scope for further expansion," mentioned Sir Bill Gammel, the CEO of the group adding further that there is potential to extend and enhance the peak plateau production level beyond the currently envisaged 175,000 bpd.

Out of the parent company's total production for the year 2008 nearly 80% was contributed by Cairn India with the rest coming from Bangladesh. Oil represented 54.4% of the group's production with natural gas and associated liquids contributing the rest 45.6% of production. The average price for oil remained near $100 per barrel in 2008 - nearly a third higher than 2007, while the gas realization also improved.

The group spent $614 million during the year on capital expenditure, however, thanks to the private placement of Cairn India's shares for $634 million, the group ended the year with higher cash balance.

The group presently has three producing blocks - two blocks in India and one in Bangladesh - which are however facing natural decline in production. Cairn's share in the production from these blocks stood at 19809 barrels of oil equivalent per day in 2007, which will go down to 11000 boepd in 2009.

Cairn Energy Plc: Dwindling Production
2009 E
From existing producing fields
Figures in barrels of oil equivalent per day (boepd)
Source: Company

In Rajasthan, the company holds over 3000 sq km area under development, where it has done 25 discoveries so far and the three largest discovered fields - Mangala, Bhagyam and Aishwarya (MBA) - are under development. These three fields put together are expected to produce nearly 1 billion barrels of oil equivalent over its estimated lifetime of 32 years. The smaller 22 fields are estimated to hold approximately 400 million barrels of in-place reserves and most of them are awaiting their commerciality to be proved.

While the insulated pre-heated pipeline from Mangala to Viramgam and then to Salaya on Gujarat coast is nearing completion, the company has started shipping trial crude oil to Kandla port through insulated tankers. Once this pipeline gets completed Cairn's crude oil will get an access to Indian Oil's Koyali refinery and RIL and Essar's refineries on Gujarat coast.

The Cairn group also holds exploration rights in nearly 72,000 sq km area in Greenland, which is a vastly under-explored region apart from some blocks in the Mediterranean region.

Source: Economic Times

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