Interim Management Statement
17 October, 2013
Cairn Energy PLC is today issuing its Interim Management Statement in accordance with the reporting requirements of the EU Transparency Directive.
Simon Thomson, Chief Executive, Cairn Energy PLC said:
“Cairn has built a strategic position along the frontier basins of the Atlantic Margin, including Morocco, Senegal, Ireland, Mauritania and Greenland and is about to commence a 12 month multi-well high impact exploration programme offering shareholders exposure to material growth potential.
Cairn continues to follow its policy of maintaining appropriate balance sheet strength as it progresses its exploration and development programmes.”
- Operations to commence shortly on the first well offshore Morocco in frontier exploration drilling programme
- Exploration programme preparations using the Cajun Express and Blackford Dolphin rigs continue for the remaining four wells in the 12 month multi-well high impact frontier exploration programme
- Joint Venture decision due in Q4 2013 on an operated exploration well offshore Greenland
Mature basin exploration and development
- Second Skarfjell appraisal well has commenced
- Kraken Field Development Plan (FDP) awaiting final approval
- Catcher FDP progressing
- Group net cash at 30 September 2013 of US$1.4 billion (bn)
- ~10% residual shareholding in Cairn India Limited (CIL) valued at ~US$1bn at 30 September 2013
- Cairn has entered into a programme to repurchase up to US$300 million (m) of ordinary shares in the company to be reviewed by the Board on a quarterly basis
Cairn’s multi-year, multi-well frontier exploration campaign will commence shortly with the first in a series of wells along the Atlantic Margin, operating offshore Morocco.
The planned operated exploration and appraisal and potential high impact drilling programme will target > 4.0bn barrels of oil equivalent (boe) of mean un-risked gross prospective resource within a total “Yet to Find” potential in excess of 10bn boe.
The Company’s frontier exploration programme remains focused on the Atlantic Margin: including Morocco, Senegal, Mauritania, West of Ireland and Greenland with a series of high-impact, exploration opportunities in the region over the next year. A number of potential follow up exploration prospects have also been mapped.
Frontier Exploration: Atlantic Margin
Drilling operations offshore Morocco targeting a slope fan prospect, FD II – A (1), on the Foum Draa block, (Cairn 50% Working Interest (WI), Operator), using the Cajun Express are about to start. The primary target for the well is a Late Jurassic / Early Cretaceous deep-water turbidite slope fan and channel complex. This will be the first penetration of this objective section by any deep water exploration well along the Moroccan margin. The well has a planned Total Depth (TD) of 5,500 metres (m) True Vertical Depth Sub Sea (TVDSS) and operations are anticipated to take approximately 60 days.
The second well in the sequence, JM III – A (6), is planned, subject to the necessary approvals, on the Juby Maritime III block (Cairn 37.5% WI, Operator) targeting a Middle Jurassic carbonate prospect more than 1,000m below the Cap Juby heavy oil discovery in the Upper Jurassic (Esso 1969). Plans for this well are underway with operations due to commence (Q4 2013/Q1 2014) following the Foum Draa well.
Subject to the necessary approvals, the proposed two well exploration programme offshore Senegal (Cairn 40% WI, Operator) is targeting to commence in Q1 2014, after operations are completed in Morocco.
One exploration well will be located on the North Fan composite prospect in 1,500m water depth. The other exploration well is planned to be drilled on a shelf edge composite prospect in 1,100m of water.
West of Ireland
Plans for the proposed Spanish Point appraisal / exploration well in Q2 2014 using the Blackford Dolphin drilling rig (Cairn 38% WI, Operator), are underway.
A joint venture drilling decision will be taken in Q4 2013 on whether the Pitu prospect, which is covered by 3D seismic, will be drilled in 2014 (Cairn 56.825% WI, Operator).
The new 3,500km2 3D seismic on block C19 which Cairn farmed into in H2 2013, is currently being interpreted and mapped, and is expected to provide material prospects suitable for future exploration drilling campaigns (Cairn 35% WI, non operator).
Mature basin exploration: UK & Norwegian North Sea and Norwegian Continental Shelf
Skarfjell Area (Cairn WI 20%)
Following completion of the first appraisal well drilled downdip and designed to test reservoir extent, thickness and quality earlier this year, drilling operations on a further appraisal well have commenced.
Cairn has participated in the APA 2013 licensing round with the award of new production licences on the Norwegian Continental Shelf expected to be announced at the beginning of 2014.
FINANCE & CORPORATE
Cairn remains in a strong financial position, ready to enter an intense operational period on the exploration front, while progressing with both the Kraken and Catcher development projects which will become the funding platform of the business once on stream.
Cairn held ~US$1.4bn in cash and cash equivalents as at 30 September 2013 and a ~10% residual shareholding in Cairn India Limited (CIL) valued at US$1bn as at 30 September 2013.
The total capital available of US$2.4bn will first be allocated to bring on Kraken and Catcher, and then to fund the ongoing exploration and appraisal programme. As set out in the half year results, expenditure on exploration and appraisal in 2013/2014 is estimated to be US$700m post tax, of which US$235m has been invested to date.
The FDP for Kraken is going through the final approval process before project sanction and capex figures are being finalised by the operator. The draft FDP on the Catcher development is under discussion and we will provide guidance on forward commitments in due course.
The Company has decided to initiate a share buy-back and has entered into an irrevocable and non-discretionary arrangement with its brokers, Morgan Stanley and Jefferies, to repurchase on Cairn’s behalf and within certain pre-set parameters, up to US$300m of ordinary shares in the Company for cancellation, which will be reviewed by the Board on a quarterly basis.
Any transaction under this share re-purchase arrangement follows shareholder approval for the Company to repurchase up to 14.99% of its issued share capital granted at the Company’s Annual General Meeting on 16 May 2013, and in accordance with Chapter 12 of the UKLA Listing Rules and the Company’s authorities to repurchase shares.
In August Cairn agreed a number of asset transfers and exchanges as part of a continuing growth and asset rationalisation programme to realise and create value from our North Sea portfolio. Regulatory approval has been received on:
- Cairn’s farm-in (via its wholly owned subsidiary Capricorn Norge AS) to Statoil’s operated production licence PL159C in the Norwegian North Sea (on a promoted basis) to achieve an 18% share of the licence
- Statoil’s acquisition of 10% of Cairn’s existing 30% interest in licences P2040 and P2086 on the UK Continental Shelf
The following asset exchanges are progressing:
- Cairn’s transfer of its entire interest of 20% in the Cladhan South Licence P1680 in the UK North Sea to TAQA Bratani Limited (a wholly owned subsidiary of TAQA)
- TAQA’s transfer to Cairn of a 15% interest in licences P2040 and P2086
- Cairn’s acquisition from Premier Oil (via its wholly owned subsidiary Capricorn Norge AS) of a 20% interest in the PL378/PL378B licences.
Separately, Cairn’s agreement to dispose of its 6% interest in Mariner and surrounding licences with Dyas UK Limited is expected to complete shortly.
Kraken Area (Cairn 25% WI)
The FDP for Kraken (operator, EnQuest) has been submitted to DECC and is awaiting final approval. The Environment Impact Assessment (EIA) for the Kraken development has been approved by DECC and the licence has been extended to drill a further appraisal well to the west of the Kraken field in 2014. The ‘K’ Prospect, located in block 9/1a in the UK North Sea (Cairn 100% WI, Operator) to the west of Kraken is also under consideration for drilling in Q4 2014/Q1 2015, subject to an ongoing technical review.
Catcher Area (Cairn 30% WI)
The Bonneville exploration well (28/9a-6) and its side track (28/9a-6z) discovered oil in excellent quality Eocene reservoirs. The Bonneville discovery is located four kilometres south of the Burgman discovery on the Catcher licence in the UK Central North Sea. The Bonneville discovery is the seventh oil discovery on the Catcher licence, indicating the potential for further satellite developments.
The FDP for Catcher is expected to be submitted in H2 2013 by the operator, Premier Oil.
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