2019 Summary

• Net oil production averaged ~23,000 bopd, at upper end of guidance (2018: 17,500 bopd)
• Oil and gas sales revenue US$504m (2018: US$396m), average realised oil price US$65.70/bbl; average production cost US$17.4/boe
• Net cash inflow from oil and gas production US$390m
• Capital expenditure was US$242m (Net of US$27m tax refund and US$21m Nova working capital reimbursement) 
• Year end Group cash US$147m, excludes proceeds from sale of Capricorn Norge of ~US$108m, completed in February 2020
• Operating profit US$155m (2018: Operating loss US$129m)
• Net impairment reversal of US$68m (2018: charge of US$166m): Reversal of US$147m Kraken impairment, offset by US$79m goodwill impairment
• Increase 2P reserves by 150% to 142 mmboe

2020 Outlook

• Estimated net production of 19,000 to 23,000 bopd; targeting average production cost <US$20/boe
• Forecast capital expenditure ~US$615m
• Senegal - Sangomar field development targeting first oil 2023, gross production 100,000 bopd
• Mexico - two further non-operated exploration wells planned 
• India Arbitration - Tribunal indicated it expects to be in a position to issue the Award in summer 2020; Cairn continues to have a high level of confidence in merits of its claims 

Simon Thomson, Chief Executive Officer, Cairn Energy PLC said:
"Cairn's strong operational performance in 2019 was delivered through production and cash flow generation at the top end of guidance and the Group ended the year with an increased net cash position and undrawn debt facilities.

A significant milestone was achieved in Senegal with a Final Investment Decision taken for the Sangomar development. Reserve additions were made in both Senegal and the North Sea and the Company encountered exploration success alongside Eni in Mexico.

The sale of Cairn's Norwegian business, combined with exits from exploration positions in Ireland and Nicaragua, demonstrate continued focus on capital allocation as the company seeks to generate further value for shareholders on a sustainable basis."

Operational review

Reserves 
After accounting for production in the period, Group 2P reserves increased during the year by 86 mmboe from 56 mmboe to 142 mmboe, following promotion of the Sangomar phase 1 contingent resources to reserves (+91.4 mmboe), increases on the main Catcher (+1.9 mmboe) and Kraken (+6.4 mmboe) fields  and movement of Worcester (+1.5 mmboe) and Catcher satellites (+0.8 mmboe) from Contingent Resources to Reserves following JV commitment to these incremental projects.
  
Production
Both Catcher and Kraken delivered good production performance in 2019, with annual production of ~23,000 bopd at the top end of our guidance.  Catcher and Kraken are at peak rates and the focus is on optimising existing wells and maturing new opportunities to help sustain production in forthcoming years.

Catcher 
Gross production from the Catcher Area (Cairn 20% WI) averaged 63,600 bopd in 2019.  The Area, comprising the Catcher, Varadero and Burgman fields, continued to outperform during 2019 achieving excellent operating efficiency from the FPSO.

2020 drilling will deliver three new production wells.  Development of two Catcher Area satellite oil fields, Catcher North and Laverda, is progressing to plan.  The two development wells are scheduled to be drilled in mid-2020, along with an additional Varadero production well.  First oil from Catcher North and Laverda is targeted for H1 2021 and together with the Varadero infill well, will help to offset natural decline of the Catcher Area as the existing wells come off plateau.

The JV continues to work up additional well targets within the Catcher area and nearby discoveries to maximise economic recovery. Two Burgman infill wells are under-evaluation for 2021.

In addition, a 4D seismic survey across the Catcher Area is scheduled to take place mid-year to identify further infill opportunities as well as to improve the imaging of already identified near field prospects and discoveries. Planned shut-downs for maintenance and tie-ins of new satellite wells will occur during 2020. 

Kraken 
Gross production from Kraken (Cairn 29.5% WI) averaged 35,600 bopd in 2019. FPSO performance was significantly improved during H2 2019 and this has continued into 2020.  Water cut levels have stabilised and more regular well testing has provided additional insight and improved confidence in long-term production forecasts.  

Drilling of two wells, a producer and an injector pair on the western flank of the Kraken field (Worcester accumulation) is expected to commence in H1 and tied in and onstream in H2 2020. This development will utilise spare capacity in the existing DC2 sub-sea infrastructure.

The western flank area provides further opportunities and the Pembroke, Antrim and Barra areas are being evaluated. 

Developments 

Senegal - Sangomar
Cairn's discoveries offshore Senegal from the country's first deep water wells opened up a new basin on the Atlantic Margin.  Cairn operated three successful drilling programmes from 2014 to 2017 and laid the foundations for Senegal's first multi-phase oil and gas development with first oil targeted in H1 2023.  

The JV will be working with all stakeholders to ensure that the Sangomar development delivers enduring benefits to the people of Senegal as a project of national significance and an anchor for economic and social development.

In January 2020, the JV made the Final Investment Decision following receipt of the 25-year Exploitation Authorisation from the Government of Senegal.

The Sangomar field (formerly SNE), located 100km offshore to the south of Dakar, is within the Sangomar Deep Offshore permit area. Phase 1 of the development will target oil reserves from the lower reservoirs and an initial pilot phase in the upper reservoirs. Over the life of the field, total recoverable oil reserves of are estimated to be ~500mmbbls with the development also including plans to export gas to shore for the domestic market.

The funding plan to allow the Group to meet its share of development costs is well progressed. Cairn remains confident that it will be able to meet its share of expenditure and maintain current equity levels in the project.

The project has now entered the development execution phase of activities and Operator Woodside has completed the purchase contract for the FPSO facility and issued full notices to proceed for the drilling and subsea construction and installation contracts. 

In addition to Phase 1, the JV continues to work with the Ministry of Petroleum and Energy and Petrosen to progress subsequent oil opportunities, including the other discoveries located in the Rufisque Offshore and Sangomar Offshore blocks. This work also includes planning for the provision of Sangomar gas to supply Senegal's domestic needs and Gas to Power initiative.

Norway asset disposals
In line with Cairn's consistent strategy to realise value and redeploy capital within our portfolio, two attractive transactions were announced in the year.

In August 2019, Cairn entered into a farm-out agreement with ONE-Dyas Norge AS for the sale of 10% interest in the Nova development offshore Norway for a consideration of US$59.5m plus working capital adjustments from the effective date of 1 January 2019. Following the transaction Cairn retained a participating interest of 10%. The transaction was completed in Q4 2019.  

In November 2019, Cairn entered into an agreement with Sval Energi AS (formerly Solveig Gas Norway AS) to dispose of the entire share capital of its Norwegian subsidiary, Capricorn Norge, for a consideration of US$100m plus working capital adjustments, from the effective date of 1 January 2020.  The transaction completed in late February 2020.

Following these transactions, Cairn has disposed of all its assets in Norway and reduced its committed exploration and development expenditure by US$210m.  We would like to express our gratitude and best wishes to our employees in Stavanger who are joining Sval Energi AS.

Exploration

Mexico 
Cairn has interests in four blocks in the Gulf of Mexico, two as operator (Blocks 9 and 15) and two as non-operator (Blocks 7 and 10).* Mexico provides an exciting opportunity to discover commercial quantities of hydrocarbons in a highly prolific, yet under-explored region and has been a focus for Cairn's exploration drilling activities in late 2019 and early 2020.    

In its Operated Block 9 (50% WI), Cairn completed the first well of a two well programme in Q4 2019. The exploration objectives of the Alom-1 well was to prove hydrocarbons in stacked Pleistocene targets, these were found to be dry and the well was permanently plugged and abandoned. Preliminary analysis indicated that the well encountered over 500m of high-quality water bearing sands across multiple targets. This information is helping to calibrate Cairn's seismic data and geological models and is being integrated to improve our understanding of the petroleum system offshore Mexico. 

In Q1 2020, an oil discovery was confirmed on the non-operated Saasken-1 exploration well (15% WI)* in Block 10 in the Sureste Basin. Preliminary estimates by the Operator, Eni, indicate the discovery may contain 200 to 300 million barrels of oil in place. Eni estimate that Saasken-1 discovered 80m of net pay of good quality oil in the Lower Pliocene and Upper Miocene sequences with excellent petrophysical properties.  An intensive data collection has been carried out on the well and Eni has indicated that a production capacity for the well of more than 10,000bopd may be possible. This first discovery across Cairn's Sureste acreage interest opens the potential for a development hub, allowing tie-back of future discoveries across Blocks 9 and 10. Cairn has identified a number of prospects and leads across Blocks 9 and 10 that could be possible future exploration targets and tie-back candidates. 

Cairn completed its second operated well in Q1 2020. The exploration objective of the Bitol-1 well on Block 9 was to prove hydrocarbons in stacked Pliocene and Miocene targets. The objectives were found to be dry and the well is being permanently plugged and abandoned. Some oil shows were encountered in good quality, water-bearing sandstones.  

The information gathered will help calibrate the seismic data and geological models and is being integrated to evaluate further prospectivity. Bitol-1 was drilled by the Maersk Developer semi-submersible to a vertical depth of 5,210m below the sea surface and was terminated in the Miocene section. The well was drilled ~120 kilometres northwest of Villahermosa. Cairn holds a 50% WI with JV partners Citla Energy (35% WI) and ENI (15%WI)*

On Block 7 (30% WI) the Ehecatl-1 well commenced in February 2020, targeting stacked objectives in the Lower Miocene. This well, operated by Eni, is being drilled with the Ensco Valaris 8505 semi-submersible rig in a water depth of 426m.

In Block 15 in the Tampico-Misantla Basin, an environmental baseline survey was completed in Q1 2019 and technical evaluation of the block is progressing.

*The National Hydrocarbon Commission (CNH) approved the 15% share of Capricorn Energy Mexico in Block 10 (contract CNH-R02-L01-A10.CS/2017). At the same time CNH approved the acquisition of a 15% share of Eni Mexico in the adjacent Block 9 (contract CNH-R02-L01-A09.CS/2017) operated by Capricorn Energy Mexico. The signature process of the revised Production Sharing Contracts to reflect the change in the JV working interest is ongoing. Capricorn Energy Mexico is a wholly owned subsidiary of Cairn Energy PLC.

UK & Norway
Cairn participated in four exploration wells in the UK & Norway region in 2019:  PL885 (Cairn 30% WI) in the Norwegian North Sea, containing the Presto prospect; PL758 (Cairn Operated 50% WI) in the Norwegian Sea, containing the Lynghaug prospect; PL842 (Cairn Operated, 40% WI) in the Norwegian Sea containing the Godalen prospect; and P2312 (Cairn Operated, 60% WI) in the UK North Sea containing the Chimera prospect.  All four wells were reported as dry and plugged and abandoned.

In early March 2020, Cairn entered into an asset exchange agreement with Shell UK Limited in which Cairn transferred a 50% WI in P2379 in exchange for 50% WI of P2380. Each licence contains a firm commitment to drill an exploration well (with both wells planned to be drilled in the period from H2 2020 to H1 2021).

Suriname
Cairn has an exploration agreement (Cairn operator 100% WI) on the largest block offshore Suriname. The licence covers an area of ~13,000 km² on the Demerara plateau in the Guyana-Suriname basin, conjugate to the West Africa Margin which includes the Sangomar field in Senegal. In H1, 4,500 km of 2D seismic data was acquired and has been fully processed.  Block-wide interpretations and an update of the prospect inventory are ongoing, with a decision on future 3D seismic acquisition to be made later this year with a view to potential drilling activity thereafter. Several projects s

upporting local initiatives are in early stage development, including industry capacity-building through training and education and a project focused on the coastal environment.

Israel
In H2 2019, 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 (33.33% WI) and Pharos Energy plc (33.33% WI). The JV is planning to re-process existing 3D seismic in order to better assess the prospectivity within the awarded licences. 

Mauritania
Cairn has exercised its option agreement with Total to enter block C7, targeting a turbidite fan play in a large offshore exploration block in a proven oil province.  Cairn has acquired a 40% WI (Total Operator 50% WI and Societé Mauritanienne des Hydrocarbures 10% WI), subject to government approval.  Final interpretation of ~7,000km2 seismic data was completed in H1 2019 with a possible well planned in H2 2021. 

Côte d'Ivoire
Cairn has a 30%, non-operated, interest in all seven of the Tullow-operated onshore licences (CI -301, CI-302, CI-518, CI-519, CI-520, CI-521 and CI-522).  A 2D seismic acquisition programme including passive seismic acquisition is being conducted in four phases and the approvals are being phased accordingly. The programme commenced on the eastern blocks (C1-520-C1-522) in early 2020 with approval for the next phase expected in Q1 and a possible well drilling in 2021.

Nicaragua
Cairn is in the process of withdrawing from the 35.1% working interest in four exploration blocks in the Sandine Basin.  Cairn participated in the seismic acquisition and evaluation phase but concluded not to proceed to the planned drilling phase.

Republic of Ireland
In the year, Cairn, along with partners, withdrew from FEL 2/14 and the licence was terminated at the year end. Cairn also withdrew from two applications to convert Licence Options 16/18 and 16/19 to Frontier Exploration Licences.    

India
The Arbitral Tribunal has indicated that it expects to be in a position to issue an Award in the summer of this year relating to the Bilateral Investment Treaty arbitration claim brought against the Government of India. Cairn continues to have a high level of confidence in the merits of its claims in the arbitration and is seeking full restitution for losses of more than US$1.4 billion resulting from: the expropriation of its investments in India in 2014; continued attempts to enforce retrospective tax measures; and the failure to treat the Company and its investments fairly and equitably. The Treaty affords strong provisions to enforce a successful award and the decision of the Tribunal binding on both parties.   

Board changes

Cairn appointed two new independent non-executive directors, with Catherine Krajicek and Alison Wood joining the Board in H2 2019. Cairn today announced the appointment of Erik B Daugbjerg as an independent non-executive director with effect from 14 May 2020. Following this appointment, Todd Hunt will retire as a non-executive director immediately following the Company's Annual General Meeting on 14 May 2020.

Outlook

In the year ahead, Cairn looks forward to continuing its near-term exploration drilling programme offshore Mexico whilst progressing the first phase of development execution offshore Senegal. These activities are supported by strong cash flow from our producing assets and a continued fiscal discipline on balancing expenditure. In addition, we anticipate resolution of the proceedings against the Government of India under the UK-India Investment Treaty

Link to Cairn Energy UK country profile