Vedanta Resources plc : Cairn announces Q3 FY2014 results

23 January 2014

Vedanta Resources plc
Cairn India announces Third Quarter Financial Results
for the period ended 31 December, 2013

For Immediate Release23rdJanuary 2014

Cairn India Limited

Third Quarter Financial Results for the period ended 31st December, 2013

Cairn India Limited (CIL), one of the 20 largest independent oil exploration and production companies in the world, today announces its third quarter financial results for the period ending 31st December, 2013.

Financial:

·      Record revenue of INR 5,000 crore (US$ 806 million), up 8% QoQ underpinned  by enhanced volumes

·      EBITDA ofINR3,555 crore (US$ 573 million); Profit After Tax  of INR 2,884 crore (US$ 465 million)

·      Gross contribution of over INR6,400 crore (>US$ 1 billion) to the national exchequer for the quarter

·      Rajasthan block contributed over 200 MMbbls since inception catering to country's energy needs

Exploration:

·      Encouraging results from exploration programme across the portfolio to add to the resource base

·      Rajasthan:

o  Achieved over 50% success rate; Opened up 3 new play types and added oil in place resources of 500-600 MMbbls in low permeability reservoir

o  On track to drill 50% of gross risked prospective resources by fiscal year end

o  Successfully tested Aishwariya Barmer Hill at 450 bopd, recognized as the 27th Discovery

o  Discovered V2Y Channel, the 28th discovery, opened up multiple pay zones in low permeability Barmer Hill formation; the zones together have demonstrated a flow potential of about 450 bopd

·      KG Onshore:

o  Submitted the Declaration of Commerciality (DoC) for Nagayalanka discovery to strengthen Eastern India portfolio, expect >10,000 bopd in 2017

o  Additional appraisal wells yielding early indications of potential resource accretion

Operations:

·      Achieved highest ever average gross operated production of 224,493 boepd in the quarter, up 5% QoQ

·      Delivered 6% QoQ increase in average gross production in Rajasthan

o  Increased production from Aishwariya post Management Committee approval 

o  Enhanced pace of well construction bringing additional barrels online

·      Initiated execution of key development projects including Mangala Polymer Flood, one of the largest Enhanced Oil Recovery (EOR) programmes in the world, to increase ultimate recovery and support production

Mr. Elango P, Whole time Director, Cairn India said:

"Cairn remains committed to discover new resources and deliver accelerated value from its assets. Our focus on execution is yielding results.Production rose by over 5% compared with the previous quarter and we remain on track to meet the full year exit guidance of over 225,000 boepd.

With strategic focus on increasing ultimate recovery from operating fields, we have commenced execution of Polymer Flood Enhanced Oil Recovery project at Mangala, making us one of the front runners in technology adoption.

The renewed exploration and appraisal programme during 2013 resulted in 3 discoveries in Rajasthan and Declaration of Commerciality of Nagayalanka discovery in KG-Onshore block. Our strategy of active exploration across the portfolio opens up potential for resource accretion in the near term. We are keen on evaluating the blocks in NELP -X announced by MoPNG recently, to build on our exploration led growth in India."

Corporate

On 26th November, 2013 Cairn India Limited announced the proposal for the Buyback of its Equity Shares from existing shareholders, other than the company's promoters. The Buyback is proposed to be undertaken from the open market through the Stock Exchanges, at a price not exceeding ₹ 335 per Equity Share, up to an aggregate amount not exceeding ₹ 5,725 crores, which is approximately 8.9% of Equity Capital at the maximum price.  

Requisite approval of the shareholders has been obtained through postal ballot and the Buyback commences from 23rd January, 2014.

Regulatory

In December 2013, the MoPNG constituted a Standing Committee on Petroleum Industry Practices to prepare national codes with evolving international standards, designed to help the industry resolve operational issues.

MoPNG has issued natural gas pricing guidelines recently that could help the industry improve its realizations paving the way for more opportunities from commercial gas.

MoPNG has also recently announced NELP - X with 46 blocks on offer covering an area of ~166 thousand sq km across a mix of onshore, shallow water and deep water prospects. In an encouraging policy development, in future, acreages would be awarded under a uniform licensing policy including NELP - X, and will cover all types of hydrocarbons. Cairn will evaluate these blocks on offer with a view to build on its active exploration portfolio in India.

Contact Details

Investor Relations

Nidhi Aggarwal, Head - Investor Relations+91 98101 97755

cilir@cairnindia.com+91 124 459 3490

Media Relations

Dr Sunil Bharati, Head, Corporate Affairs & Communications                  +91 99104 86055

cilmedia@cairnindia.com;spokesperson@cairnindia.com+91 124 459 3138

In conjunction with these financial results Cairn India is hosting a Conference Call today. Details for the live audio webcast and dial in numbers for the call are available at the Cairn India website (www.cairnindia.com).

Revenue reported for the quarter, post profit sharing with the GoI in all the producing blocks and the royalty expense in the Rajasthan block, was INR5,000 crore (US$ 806 million) up 8% QoQ driven by increased volumes. During the quarter, profit petroleum was INR1,279 crore (US$ 206 million) and the royalty paid for the Rajasthan block was INR 1,113 crore (US$ 179 million).

Earnings before Interest, Tax, Depreciation and Amortisation for the quarter was INR3,555 crore (US$ 573 million), down 2% compared to the previous quarter as the contribution from higher revenues was primarily offset by increased exploration costs and one time charge on account of adoption of fair value methodology of stock option valuation. Profit After Tax for the quarter was INR2,884 crore (US$ 465 million), down by 15% primarily due to a foreign exchange loss on the dollar deposits with the strengthening of the Rupee to US dollar. The cash earnings per share for the quarter was ₹ 16.9. Cash and Cash equivalents as at 31stDecember 2013 were ~ INR 13,000 crore in rupee funds and ~US$ 1.45 billion in dollar funds, part of which is expected to be used for the buyback programme.

The company wide gross capex incurred was ~US$ 535 million in the first 9 months of FY 14. The gross capex during the quarter was US$ 250 million up ~80% QoQ, with 45% spent on exploration activity and balance on the production and development programs, across the assets. The gross cumulative Rajasthan development capital expenditure as on 31 December, 2013 was US$ 4.1 billion.

Operational Activity across the Portfolio

Cairn India is the operator in all the blocks for exploration activity with varying participating interests.

India

Cairn made significant achievements in its exploration activities paving the way for exploration led future growth opportunities.

Rajasthan (Block RJ-ON-90/1)

During this quarter, Cairn tested the Barmer Hill formation in the Aishwariya 4-Z well at an initial rate of 450 bopd and recognized Aishwariya Barmer Hill as the 27th discovery on the block, confirming further potential that exists in the formation.

The V2Y Channel well opened up a new play type in the low permeability Barmer Hill formation in the eastern margin of the basin. It was tested and flowed oil of about 450 bopd post fraccing from three zones put together, making it the 28th discovery in the RJ-ON-90/1 block. 

Since the resumption of exploration in March 2013, 9 exploration and appraisal wells have been drilled until Q3 FY 14 and the initial results have been encouraging with 3 discoveries and a success ratio of over 50%. Overall during the current exploration campaign, 3 out of the 4 new plays have been proven to be hydrocarbon bearing with an estimated addition of 500-600 MMbbls of oil in place resources in the low permeability reservoir to the existing 4.2 bn boe. Prospective pay zones have been identified in 5 out of the 9 wells. The evaluation and testing of these zones is under progress.  So far, 25% of the prospective resources have been drilled out.

Though Cairn started Q3 FY 14 with only 1 exploration drilling rig, 2 rigs were added to the drilling program during the quarter. At the end of the quarter, mobilization of a fourth drilling rig was completed and it started rigging up in preparation to drill. With 4 rigs now available for exploration, Cairn intends to drill out 50% of gross prospective resource base towards the end of FY 14 including 2 high impact wells which will test potential gas accumulations in the deeper section.

The two year 3D seismic data acquisition programme for ~1,900 square kilometres commenced during Q3 FY 14 and will further help in identifying new exploration leads and augmenting the prospective resource base.

Ravva (Block PKGM-1)

During the quarter, a 15k jack-up rig was mobilized that has commenced drilling the 'high value, high risk' deep LO-110 exploration prospect. This well will test the hydrocarbon potential within the Late Oligocene formation.

KG Onshore (Block KG-ONN-2003/1)

ADeclaration of Commerciality for the Nagayalanka discovery has been submitted to the Management Committee during the quarter and will be followed by a FDP in the next financial year.  The production rate is expected to be over 10,000 bopd with first oil expected in 2017. 

The Nagayalanka-1z-ST appraisal well was completed and an extended flow test is now in progress with the objective of optimizing development. The well is currently flowing over 500 bopd.  The second appraisal well, Nagayalanka-NW-1, was spudded in Q3 FY14 with a view to increase the resource base in the block. This well will also be deepened to test the late syn-rift formations just below the productive Golapalli Sands. Work is progressing on the development of several additional exploration prospects within the block.

KG Offshore (Block KG-OSN-2009/3)

Conditional clearance by the Government has been received and exploration activity has restarted. The planning and tendering for the acquisition of 3D seismic data is underway, with the acquisition of 1000 sq km of 3D seismic expected by Q1 FY15. Following approval during Q2 FY14, the Minimum Work Programme has been reduced by 35% in proportion to the 'No Go' area.

Mumbai Offshore (Block MB-DWN-2009/1)

Conditional clearance by the Government has been received and exploration activity has restarted. The tendering for the 2D seismic programme is underway for the acquisition of approximately 2,000 line-km, expected within Q4 FY 14.

Palar-Pennar (Block PR-OSN-2004/1)

Progress is being made to resolve the restriction issues with the Government. The exploration activity is on hold whilst the application for shift of the restricted boundary is being considered by the Government of India.

International

Sri Lanka (Block SL 2007-01-001)

Cairn is in appraisal planning and commercial discussions with the Sri Lankan Government to monetize the discovered gas resources. In addition to this, Cairn has also submitteda bid for a block in Mannar Basin in November 2013.

South Africa (Block 1)

The interpretation of the 3D seismic data acquired in 2013 has commenced while further pre-stack processing continues.  The acquisition of approximately 3,000 line-km of 2D seismic data will commence in Q4 FY14 and will facilitate exploration evaluation in block areas not covered by the 2013 3D seismic.  Multiple plays have been identified.

Rajasthan (Block RJ-ON-90/1)

Production and Development

The Rajasthan Block produced 17.1 MMbbls in the quarter, achieving production of 49.1 MMbbls in the first nine months of FY14 and a cumulative total production of ~200 million barrels of oil until the end of Q3 FY 14.

Production growth from the Rajasthan block was excellent in Q3 FY 14, with average gross production of 186,359 boepd during the quarter, representing a 6% increase over the previous quarter. The block remains on track to deliver the expected FY 14 exit production rate of over 200,000 boepd. A total of 42 new wells were brought on line during the quarter, compared to 26 in Q2 FY 14. The overall uptime of the facilities in Rajasthan stood at 99.0% which is well within top decile global peers.

Development Area (DA) 1, comprising the Mangala, Aishwariya, Saraswati and Raageshwari oil & gas fields, produced gross average 160,975 boepd. The Mangala field continues to be largest contributor with additional wells aiding volume growth. During the quarter, FDP approval has been received from MC for the Mangala field Polymer Flood Enhanced Oil Recovery (EOR) programme, which would be one of the largest in the world.  Major contracts for the execution are being awarded and polymer injection is expected to commence by Q4 FY 15. The programme is expected to enhance recovery and support production rates from the field in the longer term. The Aishwariya field performed better than expected, with sequential increase in production during the period supported by additional drilling. Approvals are also in place for enhancing its daily production rate in excess of 20,000 boepd. New well pads have been added and oil production from the smaller Raageshwari and Saraswati fields was in line with expectation.

DA 2 comprising of Bhagyam field produced gross average 25,384 boepd during the quarter. The field gross average production increased by 8% during the quarter and is an outcome of on-going infill drilling programme.

Cairn has now achieved alignment with ONGC on field development plans for the Mangala and Aishwariya Barmer Hill discoveries, which are located within DA 1. First oil is expected in this financial year subject to approval from the Management Committee. These discoveries are within the low permeability reservoirs containing large resource base, which Cairn India intends to exploit through the use of fracture simulation and horizontal well completion technologies.

In addition to the fields outlined above, there are 19 other discoveries with majority of them in the low permeability reservoirs referred to as the satellite fields. Production from two of these fields, NI and NE, is expected to commence in this financial year, subject to receipt of approval from the Management Committee. Plans are in place to put some of the other satellite fields into production in the next financial year and, in parallel, development plans for others are in preparation.

Facilities

Cairn plans to upgrade the fluid handling capacity at the Mangala Processing Terminal in order to meet the anticipated additional requirements from the increasing water cut as the fields mature.

As part of the Mangala Polymer Flood EOR programme implementation, Cairn also intends to put in place additional facilities, which will assist with the management of the polymer flood, including storage, handling, preparation, transfer and injection into the well bore. Modification to existing well pads will also be carried out for the injection of the polymer solution.

Sales

An average of 184,177 bopd (up from 174,356 bopd last quarter), amounting to ~17 MMbbls for the quarter was sold to PSU and private refiners, across India. The average crude price realisation for the quarter was US$ 95.6/bbl, an implied 12.5% discount to Dated Brent, within the guided range of 8-13% for the year.

Gas sales during the period were ~8 MMscfd (up from 7mmscfd last quarter), amounting to total sales of ~760 MMscf for the quarter. Cairn intends to expand gas sales further.

Ravva (Block PKGM-1)

Production and development

Since inception in 1994, the Ravva block has produced more than 259 MMbbls of crude and sold 327 billion cubic feet of gas, more than double its initial estimates. During the quarter, the block produced 27,857 boepd, and routine production operations were un-interrupted in spite of increased cyclonic conditions in the Bay of Bengal with a plant uptime of 99.8% with 0.54 million recorded LTI free man-hours.

Cairn plans to commence an infill drilling campaign of at least 7 wells towards the end of the current fiscal year, using a mat supported jack up drilling rig that has been contracted. Cairn continues to deploy various technologies including 4D seismic to arrest production decline from the mature asset. Successful implementation of prudent reservoir management practices will continue to help in achieving world class ultimate recovery rates of around 50%.

Sales

During the quarter 2.1 MMbbls of crude and 3.3 billion scf of gas was sold, averaging 22,755 bopd of gross crude oil and 36 mmscfd of gross gas, respectively.

Cambay (Block CB/OS-2)

Production and Development

Since inception in 2002, the Cambay block has produced more than 18 MMbbls of crude and sold 217 billion cubic feet of gas. The Block produced almost 1 MMbbls during the quarter, averaging 10,277 boepd. The sequential production was higher as crude oil evacuation, which was interrupted in the previous quarter due to heavy monsoon and floods in the region, has since normalized. The facilities had an uptime of over 99.9% with ~0.3 million LTI free man-hours recorded in Q3 FY14.

The infill drilling campaign continues to help sustain production levels.  The results of the drilling campaign are being integrated to identify further development opportunities. The block provides an example of optimal asset utilization, whereby it is utilizing its infrastructure by tolling and processing ONGC's gas from its North Tapti field.

Sales

During the quarter, 0.7 MMbbls of crude and 1.1 billion scf of gas were sold averaging 8,144 bopd of gross crude oil and ~12 mmscfd of gross gas, respectively.

Cairn is committed to meet the highest international standards of HSE and continues to demonstrate top quartile HSE performance versus its peers.

All our operating assets remain focussed to maintain an excellent safety culture, recording a continuous LTI-free work performance.  MPT completed 20 million LTI free man hours, Ravva 0.54 million LTI free man hours and Cambay 0.3 million LTI free man hours, respectively.

During the quarter, Cairn undertook initiatives designed to keep HSE at the forefront of both our employees and contract personnel by conducting HSE Road Show on Commissioning Safety and Process Safety Awareness Campaign.

Our efforts to build a sound HSE culture are well recognized by the Oil & Gas Industry. The Mangala Oil & Gas Field unit recently receivedSafety Systems Excellence Award from the Minister of State for Labour & Employment. The unit won the second prize in Large Scale Manufacturer category of FICCI Safety Systems Excellence Awards for Manufacturing 2013, epitomizing its highest level for safety excellence and its standing as a role model to others. During the quarter, the third recognition came from securing 14 safety Awards at Mines Safety Week 2013 held under the aegis of Director General Mines Safety, Ajmer region, Rajasthan.

A Board Sub Committee on CSR has been constituted during the Board Meeting held on 22 October 2013.

Cairn India is committed to conduct business in a socially responsible, ethical and environmentally friendly manner and continuously work towards improving the quality of life of the communities in its operational areas.

The CSR activities will be focussed on the five broad themes with goals to improve overall socio economic indicators.

·      Health, water and sanitation

·      Poverty alleviation through income enhancement

·      Education

·      Infrastructure to support the socio-economic development

·      Promote sustainable environment

While continuing our initiatives on health, education, enterprise training and promotion of local content, a study has been initiated to map the social baseline data for the entire five blocks of the company's operational area. This study will help to identify highest priority projects to get a fair share of additional capital resources ensuring maximum benefit from CSR related activities.

Production remains on track to meet the fiscal year exit guidance of over 225,000 boepd from all producing assets, supported by continued infill drilling.

We target to commence implementation of Polymer Flood EOR programme by Q4 FY 15 for enhancing ultimate recovery from the Mangala field and are actively working on plans to extend the EOR programme to other fields in future.

We remain focussed on developing and enhancing production from the already discovered and new fields through the use of advanced technology in the low permeability reservoirs.

We are on track to drill out 50% of gross risked prospective resources in RJ by fiscal year end including 2 high impact wells expecting to test deeper gas plays.

Successful exploration outcomes in the southern part of the basin indicate potential for gas. Encouraged by the commencement of gas sales from Raageshwari Deep field, we are preparing a revised field development plan to include additional gas related infrastructure spend.

Aided by increased rig count to carry out exploration and appraisal activities across Rajasthan, Ravva and KG Onshore, we target to book additional reserves and resources by the fiscal year end.

Plans are on-going to evaluate the blocks in NELP - X recently announced by MoPNG, to build on our exploration portfolio in India, for both oil and gas prospects targeting exploration led profitable growth opportunities.

On 9 January, 2007, Cairn India Limited was listed on the Bombay Stock Exchange and the National Stock Exchange of India. Cairn India is now part of the Vedanta Group, a globally diversified natural resources group.

Cairn India is headquartered in Gurgaon in the National Capital Region. The Company has operational offices in India including Andhra Pradesh, Gujarat, Rajasthan, Tamil Nadu and International offices in Colombo and London.

Cairn India is one of the largest independent oil and gas exploration and production companies in India. Together with its JV partners, Cairn India accounts for around one fourth of India's domestic crude oil production. Average gross operated production was 224,493 boepd in Q3 FY 2013-14. The Company sells its oil to major refineries in India and its gas to both PSU and private buyers.

The Company has a world-class resource base, with interest in seven blocks in India, one in Sri Lanka and one in South Africa. Cairn India's resource base is located in four strategically focused areas namely one block in Rajasthan, two on the west coast of India, five on the east coast of India (including one in Sri Lanka) and one in South Africa.

The blocks are located in the Barmer Basin, Krishna-Godavari Basin, the Palar-Pennar Basin, the Cambay Basin, the Mumbai Offshore Basin, the Mannar Basin and Orange Basin.

Cairn India's focus on India has resulted in a significant number of oil and gas discoveries. Cairn India made a major oil discovery (Mangala) in Rajasthan in the north west of India at the beginning of 2004. To date, twenty eight discoveries have been made in the Rajasthan block RJ-ON-90/1 and the exploration and appraisal drilling campaign is targeting over 530 million barrels of gross recoverable risked prospective resources. 

In Rajasthan, Cairn India operates Block RJ-ON-90/1 under a PSC signed on 15 May, 1995. The main Development Area (1,859 km2), which includes discoveries namely Mangala, Aishwariya, Raageshwari and Saraswati is shared between Cairn India and ONGC, with Cairn India holding 70% and ONGC having exercised their back in right for 30%. The Operating Committee for Block RJ-ON-90/1 consists of Cairn India and ONGC.

Further Development Areas (430 km2), including the Bhagyam and Shakti fields and (822 km2) comprising of the Kaameshwari West Development Area, is also shared between Cairn India and ONGC in the same proportion. The Mangala, Bhagyam and Aishwariya (MBA) fields have gross recoverable oil reserves and resources of over 900 million  barrels, which includes proved plus probable (2P) gross reserves and resources of 635 mmboe with a further 270 mmboe or more of EOR resource potential. The total resource base supports a vision to produce 300,000 boepd, (equivalent to a contribution of more than 35% of India's current domestic crude production), subject to further investments and regulatory approvals.

In Andhra Pradesh and Gujarat, Cairn India on behalf of its JV partners operates two processing plants, 11 platforms and more than 200 km of sub-sea pipelines with a production of over 38,000 boepd.

Block SL-2007-01-001 was awarded to Cairn Lanka in the bid round held in 2008. This offshore block is located in the Gulf of Mannar. The water depths range from 400 to 1,900 meter. Cairn Lanka is a wholly owned subsidiary of CIG Mauritius Private Limited under Cairn India and holds a 100% participating interest in the block. The signing of the Petroleum Resources Agreement (PRA) to explore oil and natural gas in the Mannar Basin was held in July 2008 in Colombo.

The farm-in agreement was signed with PetroSA on 16 August, 2012 in the 'Block-I' located in Orange basin, South Africa. The block covers an area of 19,922 sq km. The assignment of 60% interest and operatorship has been granted by the South African regulatory authorities.

India currently imports 3.5* million bopd of crude oil. The current domestic crude oil production is approximately 0.76** million bopd of which Cairn India operated assets (Ravva, CB/OS-2 and the RJ-ON-90/1) contributes over one-fourth.

For further information on Cairn India Limited & Cairn Lanka (Pvt) Limited seewww.cairnindia.comandwww.cairnlanka.com.

*BP Statistical Review of World EnergyJune 2013

**MoPNG April 2013 data

Disclaimer

This material contains forward-looking statements regarding Cairn India and its affiliates, our corporate plans, future financial condition, future results of operations, future business plans and strategies. All such forward- looking statements are based on our management's assumptions and beliefs in the light of information available to them at this time. These forward-looking statements are by their nature subject to significant risks and uncertainties; and actual results, performance and achievements may be materially different from those expressed in such statements. Factors that may cause actual results, performance or achievements to differ from expectations include, but are not limited to, regulatory changes, future levels of industry product supply, demand and pricing, weather and weather related impacts, wars and acts of terrorism, development and use of technology, acts of competitors and other changes to business conditions. Cairn India undertakes no obligation to revise any such forward-looking statements to reflect any changes in Cairn India's expectations with regard thereto or any change in circumstances or events after the date hereof. Unless otherwise stated the reserves and resource numbers within this document represent the views of Cairn India and do not represent the views of any other party, including the Government of India, the Directorate General of Hydrocarbons or any of Cairn India's joint venture partner.

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About Vedanta Resources plc

Vedanta Resources plc ("Vedanta") is a London listed FTSE-100 diversified global resources major. The group produces Aluminium, Copper, Zinc, Lead, Silver, Iron ore, Power, and Oil and Gas. Vedanta has world-class assets in India, Zambia, South Africa, Namibia, Ireland Liberia, Australia and Sri Lanka and a strong organic growth pipeline of projects. With an empowered talent pool globally, Vedanta places strong emphasis on partnering with all its stakeholders based on the core values of entrepreneurship, excellence, trust, inclusiveness and growth. For more information, please visit: www.vedantaresources.com.

Disclaimer

This press release contains "forward-looking statements" - that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "should" or "will." Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, uncertainties arise from the behaviour of financial and metals markets including the London Metal Exchange, fluctuations in interest and or exchange rates and metal prices; from future integration of acquired businesses; and from numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive or regulatory nature. These uncertainties may cause our actual future results to be materially different that those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.