The Times: Cairn waits for green light on Mangala: “Approval by the Government would enable Cairn to start developing Mangala to extract up to 100,000 barrels of oil a day from the Rajasthan desert bloc it bought off Shell two years ago.” (ShellNews.net)
By Peter Klinger
September 08, 2004
CAIRN ENERGY, the Edinburgh oil and gas company, said yesterday that it was confident India’s Government would give the go-ahead to turn its Mangala discovery into a significant oil-producing asset before the end of the year.
Approval by the Government would enable Cairn to start developing Mangala to extract up to 100,000 barrels of oil a day from the Rajasthan desert bloc it bought off Shell two years ago.
Cairn has estimated that the development cost of the Mangala discovery would be about $500 million (£280 million).
The Indian Government, as part of a mandatory production-sharing arrangement with Cairn, is likely to fund about 30 per cent of the cost, with the Edinburgh company responsible for the remainder.
Bill Gammell, chief executive, said Cairn should have little difficulty raising its share of the capital cost without affecting its major exploration drilling programme on the Rajasthan bloc.
Cairn announced a fifth discovery on the bloc yesterday, although it did not reveal estimates of how much oil the latest find could contain.
Importantly, however, it said the as yet unnamed discovery also encountered water, which Cairn might be able to use for the development of Mangala.
The discovery failed to excite investors, who marked Cairn’s shares down 24p to £14.50. Analysts said they were disappointed not to have received more detail.
Cairn remains one of the stand-out performers on the London Stock Exchange this year, its shares having more than trebled since it announced the Mangala discovery in January.
Most of Cairn’s focus is on Mangala and the N-A discoveries, the first two on the bloc.
Mr Gammell said he hoped that production from the two discoveries, which are close to each other, would start late in 2007 at a rate of between 60,000 barrels and 100,000 barrels a day.
Cairn expects that the Mangala discovery contains up to 1.1 billion barrels, of which it hopes to be able to recover as much as 40 per cent. Mr Gammell said an independent audit of Cairn’s reserves, conducted by DeGolyer & MacNaughton, the consultants, had broadly confirmed its own figures. DeGolyer calculated that Mangala contained up to one billion barrels of oil.
Cairn also reported a 40 per cent drop in interim pre-tax profit to £22.9 million. Mr Gammell said the drop in profit was due to lower production from Cairn’s Ravva (India) and Sangu (Bangladesh) fields because of the respective governments’ increased share of output. Cairn’s share of production from the two fields fell 19 per cent to 24,799 barrels a day, more than offsetting a 19 per cent increase in realised oil price.
The weak US dollar reduced Cairn’s reported turnover, which fell 22 per cent to £61.1 million. Cairn’s runaway share price also contributed to the lower profit.
The company was forced to take a £3.2 million non-cash charge to reflect the vesting of rewards to key executives under its long-term incentive plan.
The rewards are based on achieving share price targets and, with Cairn’s shares soaring this year, easily eclipsed in value last year’s awards, which amounted to £500,000.
OIL'S VOYAGE OF DISCOVERY
January 19, 2004: Mangala oilfield found
July 8: drilling confirms initial Mangala discovery
September 7: independent experts confirm Mangala holds one billion barrels of oil
By December: Indian Government expected to approve development
In 2005: Cairn to arrange about £280 million for Mangala development
By Q4, 2007: Mangala due to produce up to 100,000 oil barrels a day