Vedanta Resources : Cairn India Ltd Q3FY17 Results

Cairn India Limited

• Revenue at ₹ 2,149 crore; up 5% QoQ

• EBITDA at ₹ 1,067 crore; up 3% QoQ

• Net profit at ₹ 604 crore; down 22% QoQ primarily due to forex loss on rupee depreciation

• Strong free cash flow of ₹ 1,469 crore in subdued oil price environment; solid Cash and Cash Equivalents position of ₹ 25,975 crore

  Operational Highlights

• Average gross oil and gas production across assets firm at 182 kboepd, in-line with expectation considering execution of the planned maintenance shutdown at Rajasthan

• Mangala EOR continues excellent performance; additional production from polymer injection increases further from ~52 kboepd to ~55 kboepd

• RJ water-flood operating cost remains low at US$ 4.3/boe; blended operating cost also competitive at US$ 6.3/boe

  Development / Exploration Highlights

• RDG - Phase-1: All 15 new wells are online; Phase-2: Tendering for new terminal and rig on track

• Aishwariya EOR - FDP submitted to the JV partner, polymer injectivity test planned in Q4 FY17, first polymer injection expected in Q1 FY19

• Bhagyam EOR - Polymer injectivity test commenced in October 2016, revised FDP to be submitted in Q4 FY17, first polymer injection expected in Q4 FY19

• Aishwariya Barmer Hill - >25% reduction in capex to US$ 220 million for EUR of 30 mmbbls; Stage-1: Production from appraisal wells expected in Q1 FY18; Stage-2: Project execution expected to begin in FY18

• Palar-Pennar - Commencing exploratory drilling in February

• Rajasthan - Completed processing of 3D seismic data for 'Air Field South' and DP

  Corporate and Regulatory Developments

• The proposed merger of Vedanta Limited and Cairn India was approved by all sets of shareholders in September 2016 and we expect the transaction to complete in the first quarter of CY2017.

• The PSC extension writ is sub judice in the Hon'ble High Court of Delhi.

• With respect to the crude export writ, Cairn has filed an appeal before the Division Bench of the High Court.

• DGH has initiated consultation process to formulate National Data Repository (NDR) policy for data sharing, accessibility and dissemination. NDR will facilitate promotion and regulation of hydrocarbon exploration and development activities in India.

We have made use of the challenging oil price environment to achieve competitive returns even at Brent US$ 40 per barrel for planned projects. We are in active discussions with world class oil field services companies to partner for the end to end outsourcing of certain projects. This would help us further optimize costs, expedite project execution through better vendor coordination, and act as a force multiplier, allowing us to target a larger number of projects simultaneously.

The alignment between OPEC members to address the global supply glut would further enhance our project economics as we look to aggressively scale up investments."

During Q3 FY17, Cairn had a gross production of 16.7 mmboe across all the assets, of which working interest production was 10.7 mmboe. Gross Sales was 17.1 mmboe averaging at 185,339 boepd.

* Includes internal gas consumption

Gross production from Rajasthan block was at an average rate of 154,272 boepd, supported by strong production volumes from Mangala EOR. Total production for the quarter was 14.2 mmboe and the cumulative production since inception was at 383 mmboe till the end of December. Additional production from polymer injection in Mangala increased from an average rate of 52 kboepd in Q2 FY17 to 55 kboepd in Q3 FY17. Continued reservoir management practices including production optimization helped maintain firm production from Bhagyam and Aishwariya. Satellite fields continue their steady performance with production at 3.7 kbopd in Q3 FY17. Total oil sales for the quarter were 14.3 mn barrels, at an average rate of 155,245 bopd.

Overall production from Rajasthan was lower for the quarter due to the planned maintenance shutdown at Mangala Processing Terminal in November 2016. The shutdown was completed successfully and execution of the critical activities will improve asset integrity and facility performance especially in the polymer breakthrough phase.

Gas production from RDG declined from 33 mmscfd in Q2 FY17 to 21 mmscfd in Q3 FY17. Total gas sales were also down to 0.4 bcf at an average rate of 4 mmscfd. Gas sales are temporarily suspended due to a technical issue between the transporter and the buyers. The company is closely engaged with the stakeholders to resolve the issue and commence sales at the earliest.

The water-flood operating cost in Rajasthan was maintained at a low of US$ 4.3/boe in Q3 FY17 through continued improvement in crude processing and well maintenance cost. The operating cost was marginally higher from US$ 3.9/boe in Q2 FY17 due to lower production volumes and added expenses for planned shutdown activities. Blended operating cost was also up from US$ 5.8/boe to US$ 6.3/boe while polymer injection was maintained at the target level of 400 kblpd.

Retaining a focus on safe operations and asset integrity, the average facility uptime was over 99% in Q3 FY17. Lost Time Incident (LTI) free man-hours for Rajasthan Projects crossed 31.1 million since last LTI.

Ravva continues to be an excellent example of good reservoir management and has produced 281 mmbbls of crude and over 348 bcf of gas since inception at an approximate recovery of 48%, far higher than the initial resource estimates. In Q3 FY17, the production declined by 3% QoQ to an average rate of 18,172 boepd, amounting to 1.7 mmboe. Incremental opportunities continue to be targeted to sustain the production rates by offsetting natural decline. A well intervention program including coil tubing and acid stimulation is also planned in Q4 FY17 to enhance production rates. For Q3 FY17, 1.6 mmbbls of crude and 1.0 bcf of gas were sold, averaging 16,990 bopd of crude oil and 10.7 mmscfd of gas, respectively.

Keeping asset integrity at the core, Ravva recorded an uptime of 99.9% in Q3 FY17. Continuing with its high safety standards, Ravva asset recorded over 5.7 million LTI free man-hours since last LTI.

Cambay has been consistently delivering strong performance with a cumulative production of over 27.3 mmbbls of crude and over 228.5 bcf of gas, marking an overall recovery of ~30% since inception in 2002. In Q3 FY17, the production was lower by 5% QoQ at an average rate of 9,375 boepd, amounting to 0.9 mmboe. Continued production optimization activities helped offset the natural decline in the block. During the quarter, 0.8 mmbbls of crude and 0.9 bcf of gas were sold, averaging 9,106 bopd of crude oil and 9.4 mmscfd of gas, respectively.

The asset recorded an excellent uptime of ~99.8% in Q3 FY17 and LTI free man-hours of 3.8 million.

With a focus on developing the large resource base of over one billion boe, the company is making continuous efforts to advance key projects to the production stage. Major developments for the quarter include award of contract, FDP submission, field testing and cost reduction initiatives across projects.

Maintaining a technology focused approach, the team has achieved higher initial well productivity resulting in increased recovery estimates from 74 mmboe to 86 mmboe (including condensate) till 2030. Higher well productivity along with cost reduction has improved the rate of return to 25-30% from the initial 20%.

The phased development of the project is progressing as per plan to achieve a gradual ramp-up in production while ensuring prudence in capital investment. As part of Phase-1, the remaining 7 wells out of the 15 wells frac program have also been brought online and will start adding to the production as per plan. Contract for low cost augmentation of the existing facility was awarded in October 2016. Contracts for enhancement of existing pipeline capacity are being progressively awarded. Completion of Phase-1 is expected to increase the gas production to 40-45 mmscfd by end of Q2 FY18. For Phase-2, tendering activity for new gas processing terminal and drilling rig is continuing as per plan. Work on gas