Cairn Energy Plc (LON:CNE)’s recently released preliminary financial results for 2009 included a positive surprise for investors. An upbeat re-assessment of oil production from the Rajasthan fields in India will see the group target 175,000 barrels of oil per day (bopd) from the India fields alone… although higher production seems possible. Encouragingly, estimated reserves at the Rajasthan resource base have been increased and Cairn also believes that there is another 2.5 billion barrels yet to be discovered. The remaining barrels of oil in place increased from 3.7 billion barrels to 4.0 billion barrels. This increase makes it possible to increase production to 240,000 barrels per day (boepd) has provided rocket fuel for the company’s share price. Focusing on the results, profit after tax and before exceptional items was US$52.7 million (2008: US$10.9 million). Production from India began in August 2009 and has had a positive impact on the company’s balance sheet. At the end of 4Q09 the group had a cash balance of an impressive US$1.2 billion.
About half the cash is held by Cairn India which has net debt of US$96 million and undrawn credit facilities of US$923 million. The company has recently scotched rumours that Cairn India is for sale. Cairn will use the robust long-term cash flow generated from Rajasthan to fund high risk high reward exploration plays like the frontier basins in Greenland. Greenland boasts excellent exploration potential and the first exploration well in Greenland will be spud later this year. Operationally, there were three notable operating highlights for 2009 which stood out. The first was ongoing strength of the entitlement reserves which came in at just shy of 254 million barrels of oil equivalent (boe). In addition, gross production increased from 76,298 boepd to 77,222 boepd whilst entitlement production jumped from 12,801 boepd to 20,307 boepd, which reflected output coming from Rajasthan for the first time. India looks set to continue to feed the group’s bottom line and a 20,000 bopd processing train at the Mangal Processing Terminal serving Rajasthan has been completed. And what’s more, trains 2 and 3 will be ready in 2Q10 to receive oil via the 600km pipeline that will also be ready in 2Q10. The Government of India has approved a plateau production of 175,000 boepd. Cairn‘s next challenge is to demonstrate a resource base…
