Vedanta Resources : Cairn Q1 FY2017 Results

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Vedanta Resources plc Cairn India announces Q1 FY2017 Results

Vedanta Resources plc's subsidiary Cairn India Limited today announced results for the first quarter ended 30 June 2016.

For Immediate Release 21st July, 2016 Cairn India Limited Quarterly Financial Results for the period ended 30th June, 2016

Normalized net profit up by 88% QoQ to ₹ 360 crore

Financial Highlights

• Revenue at ₹ 1,885 crore (US$ 282 mn); up 10% QoQ on improved price realization

• EBITDA at ₹ 794 crore (US$ 119 mn); up 48% QoQ on account of higher revenues and reduction in operating cost

• Normalized net profit at ₹ 360 crore (US$ 54 mn); up 88% QoQ

• Strong total free cash flow of ₹ 1,521 crore (US$ 226 mn) generation despite low oil price; robust Cash and Cash Equivalents position of ₹ 23,394 crore (US$ 3.5 bn)

• Discount to Brent for Rajasthan (RJ) crude at US$ 8.2/bbl, reduced from 19.8% to 17.8%

  Operational Highlights

• World's largest Polymer EOR project contributing ~42 kboepd; up 31% QoQ

• Average gross oil and gas production maintained at 206 kboepd

• Continuous improvement in RJ water-flood operating cost, reduced by 7% QoQ and 14% from FY16 to US$ 4.4/boe; polymer injection cost in Mangala also 25% below guidance

  • ~25% reduction in well maintenance expenses from FY16, ~40% work-over optimization

  • ~24% reduction in crude processing charges from FY16, savings on chemical cost and gas compressor rentals

    Development / Exploration Highlights

• Ultimate gas recovery potential up by ~25% in RDG post completion of hydro-fraccing in 15 wells. Gross recovery (gas and condensate) till 2030 up from 74 mmboe to 86 mmboe

• Polymer flood in MBA has potential to add ~10-12% recovery, further to 30-35% estimated from water-flooding. Development plan for Aishwariya (15 mmbbls EUR) and Bhagyam (45 mmbbls EUR) EOR till 2030 expected to be submitted in current quarter and 1H CY17, respectively.

• Development of Aishwariya Barmer Hill (20-30 mmbbls EUR) envisaged in stages. Production from stage-1 expected in current fiscal year. Exploration potential of 1.4 bnboe of HIIP in Barmer Hill offers a growth opportunity with an estimated ultimate recovery of 8-10%

• Seismic data interpretation ongoing to identify new prospects near Raageshwari Deep Gas field and other areas within the block

  Corporate and Regulatory Developments

• At the Annual General Meeting held earlier in the day, members have voted on all items of the AGM Notice. The results shall be declared within the prescribed time limits and will also be placed at the website of the Company and CDSL.

• Mike Wylie joins Cairn India as Head of Tight Oil business. His rich experience on unconventional resources from his earlier tenure at Exxon Mobil and Newfield Exploration, will help strength the focus on the tight oil resources.

• Cairn India remains committed to the Cairn - Vedanta Limited merger and continue to work towards its completion. The merger would generate value for shareholders delivering stable cash flows through the cycle by providing exposure to a large, resilient and diversified commodity portfolio with significant near term growth potential.

• The PSC extension and crude export writs are sub judice in the Hon'ble High Court of Delhi. Pursuant to the Delhi High Court's directions, ONGC in the capacity of the Contractor (as per the PSC) communicated its consent to the extension of PSC on the same terms and conditions for a period of 10 years. The Rajasthan JV partners keenly await Government's expeditious decision on PSC extension, to initiate large investment.

• In May 2016, the MoPNG launched Discovered Small Fields Bid Round - 2016. This is a significant step towards a more simplified and transparent, administrative and regulatory set-up for the Oil

& Gas sector. Cairn India believes this will increase production and investments in the Indian Oil

& Gas sector.

Mr. Sudhir Mathur, CFO and Acting CEO of Cairn India commented:

"The Cairn team has delivered a resilient performance, registering 88% increase in profit for the quarter on sequential basis. We have taken significant measures to drive cost efficiency and rationalize capital investment, resulting in free cash generation in a lower-for-longer oil price environment.

We remain committed to our four projects - RDG Gas, Enhance Recovery at Bhagyam & Aishwariya as well as the tight oil projects. Sharp reductions in drilling and fraccing costs coupled with learnings from Mangala EOR give us the confidence that we will be ready to execute in a US$ 50/barrel world within 12 months."

Operational Review

During Q1 FY17, Cairn had a gross production of 17.9 mmboe across all the assets, of which working interest production was 11.4 mmboe. Gross Sales was 17.7 mmboe averaging at 195,003 boepd.

Average Daily Production	Units	Q1			Q4
		FY17	FY16	y-o-y (%)	FY16	q-o-q (%)
Total Gross operated*	Boepd	206,455	217,935	-5%	206,170	0%
Gross operated	Boepd	196,861	209,738	-6%	197,039	0%

Average Daily Production	Units	Q1			Q4
		FY17	FY16	y-o-y (%)	FY16	q-o-q (%)
Oil	Bopd	190,305	203,731	-7%	190,271	0%
Gas	Mmscfd	39	36	9%	41	-3%
Working Interest	Boepd	125,391	130,565	-4%	125,775	0%
Rajasthan (Block RJ-ON-90/1)
Total Gross operated*	Boepd	175,760	179,683	(2%)	176,039	(0%)
Gross operated	Boepd	166,943	172,224	(3%)	167,650	(0%)
Oil	Bopd	164,547	170,686	(4%)	164,826	(0%)
Gas	Mmscfd	14	9	56%	17	(15%)
Gross DA 1	Boepd	150,699	149,651	1%	150,918	(0%)
Gross DA 2	Boepd	16,244	22,573	(28%)	16,732	(3%)
Gross DA 3	Boepd	-	-	-	-	-
Working Interest	Boepd	116,860	120,557	(3%)	117,355	(0%)
Ravva (Block PKGM-1)
Total Gross operated*	Boepd	20,664	29,563	(30%)	20,068	3%
Gross operated	Boepd	19,637	28,556	(31%)	19,058	3%
Oil	Bopd	17,014	25,245	(33%)	16,588	3%
Gas	Mmscfd	16	20	(21%)	15	6%
Working Interest	Boepd	4,418	6,425	(31%)	4,288	3%
Cambay (Block CB/OS-2)
Total Gross operated*	Boepd	10,031	8,689	15%	10,063	(0%)
Gross operated	Boepd	10,281	8,958	15%	10,331	(0%)
Oil	Bopd	8,744	7,800	12%	8,856	(1%)
Gas	Mmscfd	9	7	33%	9	4%
Working Interest	Boepd	4,113	3,583	15%	4,133	(0%)

* Includes internal gas consumption

Operations

Rajasthan (Block RJ-ON-90/1)

The Rajasthan block crossed the cumulative production of 350 mmboe in Q1 FY17, with a total production of ~354 mmboe by the end of the quarter. Gross production was largely stable at 15.2 mmboe at an average of 166,943 boepd, aided by encouraging Mangala EOR volumes and inline performance from Aishwariya. Contribution from Mangala EOR increased by ~31% to an average of 42,000 boepd for the quarter from 32,000 boepd in Q4 FY16, driven by enhanced well productivity and new wells coming online. Production optimization and maximization of liquid handling capacity helped maintain strong performance from Aishwariya. Satellite Field's production increased ~4% QoQ to an average of ~3.5 Kbopd in Q1 FY17. Total oil sales for the quarter was 14.9 mn barrels, at an average rate of 164,169 bopd.

Gas production from RDG remained firm at an average of 28 mmscfd, amounting to 2.6 bcf. Hydro-frac campaign of 15 wells that started in December 2015 to sustain the growth level, was successfully completed Total gas sales was 1.3 bcf, maintaining an average rate of 14.4 mmscfd.

The water-flood operating cost in Rajasthan has been consistently brought down over the past six quarters to US$ 4.4/boe in Q1 FY17 from US$5.2/boe in FY16 through cost reduction in crude processing and work-over optimization activities. Blended operating cost was also reduced to US$ 6.4/boe from US$6.5/boe while maintaining the injection of polymer at the targeted level of 400 kblpd.

Maintaining continued focus of safe operations and asset integrity, the average facility uptime was over 99% in Q1 FY17. Lost Time Incident (LTI) free man-hours for Rajasthan Projects crossed 30 million since last LTI.

A routine operational and statutory maintenance shutdown at the Mangala Processing Terminal is planned in later half of September. While this would have an impact on production, the opportunity will be used to create tie-ins for ongoing new facility enhancements, development projects and future growth projects.

Ravva (Block PKGM-1)

The Ravva block continues to be an excellent example of good reservoir management, having produced more than 278 mmbbls of crude and over 345 bcf of gas with an overall recovery of ~50% since inception in 1994, far greater than the initial resource estimates at the time of the PSC award. In Q1 FY17, Ravva production increased 3% QoQ to 1.8 mmboe at an average rate of 19,637 boepd on account of improvement in well productivity after the well stimulation program was carried out in Q4 FY16. Prudent reservoir management through continuous surveillance, sustained water injection and optimizing the lift gas, has helped offset the natural decline. For Q1 FY17, 1.5 mmbbls of crude and 1.4 bcf of gas were sold, averaging 16,934 bopd of crude oil and 16 mmscfd of gas, respectively.

With a strong focus on asset integrity, Ravva recorded an uptime of 99.9% in Q1 FY17. Maintaining its high safety standards, Ravva asset completed two years of Lost Time Incident (LTI) free operations this quarter and recorded 4.9 million LTI free man-hours since last LTI.

Cambay (Block CB/OS-2)

The Cambay block has been consistently delivering strong performance with a total production of more than 25 mmbbls of crude and over 226 bcf of gas since inception in 2002. For Q1 FY17, the production remained steady at 0.9 mmboe at an average rate of 10,281 boepd. Effective reservoir management practices and production optimization measures helped offsetting the natural decline in the block. During the quarter, 0.7 mmbbls of crude and 0.8 bcf of gas were sold, averaging 7,343 bopd of crude oil and 9.2 mmscfd of gas, respectively.

Facilities maintained excellent uptime of 99.9% in Q1 FY17 and recorded 3.4 million LTI free man-hours.

Development

With an aim to monetize the large base of resources of over one billion boe in Rajasthan, significant development efforts have been undertaken to improve their economics. Following activities were undertaken in this direction in the key projects:

Mangala EOR