H1 2019 Summary

• Combined net oil and gas production ahead of 2019 guidance at ~23,700 boepd (+15% v previous six months)
• Oil and gas sales revenue US$257m, average realised price US$68/boe; average production cost US$17/boe
• Net cash inflow from oil and gas production US$177m
• Capital expenditure: cash outflow US$135m (US$14m of tax refund receivable)
• Group cash at 30 June 2019 US$58m; US$60m drawn under US$575m RBL facility

2019 Outlook

• Full year oil production guidance: upgraded to 21,000-23,000 bopd from 19,000-22,000 bopd; average production cost reduced from US$20/boe to ~US$18/boe
• Full year forecast capital expenditure US$295m; Exploration & Appraisal US$165m (net of tax refund), Development & Production US$130m
• Portfolio Management: agreed to farm down 15% WI in Chimera to DNO, agreement with ENI to swap 15% WI in Block 10 Mexico and agreed sale of 10% WI in Nova development to ONE-Dyas
• Senegal: SNE field development (Cairn 40% WI) major contracts awarded. JV progressing towards FID in H2 2019, targeting first oil in 2022
• Mexico: two operated wells Block 9 (Cairn 50% WI) to be drilled in Q3 and Q4: two non-operated wells on Block 7 (Cairn 35% WI) and Block 10 (Cairn 15% WI) to commence in H2 2019
• UK and Norway: Drilling about to commence on Chimera (Cairn 45% WI) exploration well

Production 
In H1 oil and gas production averaged 23,700 boepd net to Cairn, up 15% on the previous six months. To date in Q3 we have continued to see exceptional uptime on Catcher and significantly improved facilities performance at Kraken and as a result, are upgrading 2019 full year production guidance to 21,000-23,000 bopd net. Both fields have further investments planned with additional drilling opportunities in 2020 to help maximise recovery.

Simon Thomson, Chief Executive, Cairn Energy PLC said:
“As a full cycle E&P business Cairn has seen good progress in the first half of 2019 with the opportunity to develop and deliver multiple catalysts for future growth.

Production performance from our North Sea assets is ahead of expectations, delivering significant cash flow to reinvest in the portfolio. The SNE development in Senegal, where FID is expected in H2, remains on schedule for first oil in 2022.

Our drilling programme is about to commence offshore Mexico, where Cairn has built a material footprint in one of the world’s most prolific basins. Recent portfolio acreage additions provide line of sight to future high potential exploration prospects.”

Operations

Catcher 
Catcher’s 99% operating efficiency, coupled with the Excess Production Amendment agreed with the FPSO owner, has allowed sustained production at ~66,600 bopd gross (~13,300 bopd net) in H1. The formal approval for the satellite fields, Catcher North and Laverda has been received which will help to sustain production rates. These two wells together with the Varadero infill well are scheduled to spud in Q2 2020 with first oil targeted in 2021. A 4D seismic survey across the Catcher Area is scheduled for mid-2020 to help confirm additional future infill well locations.

Kraken 
Average gross production in the six months to June 2019, was more than 32,700 bopd (~9,650 bopd net). Significantly improved facilities performance at Kraken together with the DC4 wells coming online has resulted in more continuous periods with production rates above ~40,000 bopd being achieved. Additional drilling opportunities are maturing in the Western flank where development drilling of a producer-injector pair through spare capacity in the existing DC2 sub-sea infrastructure is planned for 2020. Kraken crude pricing continues to strengthen internationally in light of the current heavy oil market.

Developments

Senegal
The SNE field development first phase remains on schedule, targeting first oil in 2022 with expected gross production of 100,000 bopd. The JV submitted an updated SNE Exploitation and Development Plan to the Ministry of Petroleum and Energies in August 2019 in order to meet changes and further details requested by the Ministry ahead of approval. The JV is targeting the Final Investment Decision in H2 2019 and is progressing finance arrangements including project financing.

Diamond Offshore was awarded the development drilling contract in Q2 2019 with phased drilling targeted to commence in Q1 2021. Two Diamond drill ships, Ocean BlackRhino and Ocean BlackHawk, will undertake this programme. Halliburton and BHGE have been awarded the main Drilling Services contracts. Shearwater was awarded a high-density multi-azimuth 3D seismic acquisition contract over the SNE field and neighbouring FAN discovery. Data acquisition for this survey commenced in H2. The subsea and FPSO FEED activities have progressed well and are now complete.

Norway
The Nova development is on schedule with first oil targeted in 2021 and has expected gross recoverable reserves of ~80m boe, of which the majority will be oil.

In August, Cairn entered into an agreement for the sale of a 10% WI in the Nova development to ONE-Dyas Norge AS for US$59.5m plus working capital adjustments, which is expected to increase group liquidity by ~US$100m. Following this transaction, Cairn retains a participating interest of 10% in the Nova development. The transaction remains subject to the written consent of the Norwegian Ministry of Petroleum and Energy.

Nova is anticipated to deliver peak production of 50,000 bopd (net to Cairn ~5,000 bopd). The first project milestone was achieved in H1 with two subsea templates installed on the ocean floor. This unlocked the next phase of the field development with 65km of pipelines laid in preparation for tie-back to the nearby Gjøa platform. Gjøa will receive the well stream and provide water injection and gas lift to the Nova field. A new module will be lifted onto Gjøa in 2020. Further satellite developments planned to be tied back to Gjøa have been submitted to the NPD with a likely positive impact on the operating expenditure and field life of the Nova.

Exploration

Mexico 
Since the opening of the region to international oil companies for the first time, there have been only five exploration wells drilled by IOCs in the Sureste Basin with more than 25 planned in the next five years. This compares to more than 3,000 wells in the US Gulf of Mexico in the last 35 years. Cairn now holds a material shallow water footprint in one of the world’s most prolific hydrocarbon provinces.

Cairn has a position in four blocks (7, 9, 10 and 15) in the Gulf of Mexico, two as operator and two as non-operator. Mexico provides an exciting opportunity to discover commercial quantities of hydrocarbons in an under-explored region.

Cairn is targeting an estimated gross mean prospective resource of ~550 mmboe in the 2019 drilling programme due to commence in September. The two operated wells on Block 9 will be drilled on the Alom and Bitol prospects with the Maersk Developer semi-submersible rig. Contingent on the success of this exploration campaign, Cairn will seek to expediate the appraisal of any discovery.

Non-operated drilling activity will run in parallel on Blocks 7 and Block 10 where two Eni operated wells are expected to commence in Q4 2019.

In August 2019, Cairn agreed a farm-in agreement with ENI to swap 15% of Cairn’s interest in Block 9 for 15% of ENI’s interest in Block 10. On completion, this transaction will result in Cairn holding a reduced interest of 50% on Block 9 and a new interest of 15% on Block 10 (subject to Government approval).

Cairn operates an additional licence in Mexico on Block 15 (50% WI) located in the shallow water Tampico-Misantla Basin, north-west of the Sureste Basin interests. In August 2019 the regulator, Comisión Nacional de Hidrocarburos, approved the exploration plan with work commitments comprising the purchase of 3D seismic data and an environmental baseline survey, both of which have been completed. Further evaluation of the Block is ongoing.

Suriname 
In Suriname (Cairn 100% WI), a 4,500 km 2D seismic survey was acquired in H1. Fast track processing was completed and fully processed products will be delivered in Q4 2019. This new data will be incorporated into block wide interpretations, leading to an updated prospect inventory and decision on future 3D seismic acquisition.

Nicaragua
In H1, Cairn secured all consents to complete a farm-in to a 35.1% WI of the Equinor operated exploration blocks in the Sandino Basin, offshore Nicaragua’s Pacific coast. The partnership has recently completed the acquisition and processing of a modern 3D seismic survey which has provided further encouragement to support exploration drilling.

Côte d’Ivoire
Cairn has entered into the frontier onshore rift play which is adjacent to an established hydrocarbon province with both oil and gas production. Cairn’s farm-in for a 30% WI in all seven of Tullow Oil’s onshore licences was completed in H1. A 2D seismic acquisition programme which includes passive seismic acquisition, is expected to commence in coming months, subject to the receipt of regulatory approvals. The acquisition will be phased, beginning in the eastern blocks (CI-520-CI-522) and due to be completed in 2020.

Israel
Following the end of the reporting period and subject to final completion matters, Cairn was awarded eight licences offshore Israel in the country’s second offshore bid round. Cairn is Operator of the licences with a 33.34% WI alongside two JV partners: Ratio Oil Exploration with 33.33% WI, which together with partners discovered one of the world’s largest deep-water gas discoveries, Leviathan, offshore Israel; and SOCO International plc with 33.33% WI.

UK & Norway
One exploration well was completed in Norway in H1: PL885 (30% WI) containing the Presto prospect which was unsuccessful. A further two exploration wells have been completed so far in Norway in Q3 2019: PL758 (Cairn Operator 50% WI) containing the Lynghaug and PL842 (Cairn Operator 40% WI) containing the Godalen prospect. Both wells were unsuccessful, there were no traces of petroleum and the wells were classified as dry.

Drilling is about to commence on a well on P2312 (45% WI), targeting the Chimera prospect which is the Company’s second operated well in the UK North Sea. The well is targeting a material prospect of 150 mmbbls gross with stand-alone development potential. The well is being drilled by the Stena Don and operations are expected to complete in Q4 2019. 

Cairn was awarded the two licences it applied for in the UK Frontier 31st Offshore Licensing Round in H1: Operatorship and 100% WI in the Mane licence which is located close to Chimera and 50% WI and Operatorship in the East Orkney Basin licence. 

In 2020, Cairn expects to continue an exploration campaign across the UK & Norway region with two firm wells.

India 
There is no change in outlook with regard to the Indian arbitration. Drafting of the award by the Tribunal is ongoing and Cairn continues to have a high level of confidence in the merits of its claim. Cairn is seeking full restitution for losses totalling more than US$1.4bn resulting from India’s expropriation of its investments in India in 2014, and India’s unfair and inequitable treatment of those investments, due to the imposition of retrospective tax measures.

Link to Cairn Energy UK country profile