London: Cairn Energy Plc., the UK-listed explorer focused on India, warned that the target for completing an export pipeline from its Mangala field by the end of the year looks to be “increasingly challenging”.
Output from the Mangala field in Rajasthan, set to reach plateau output of 175,000 barrels a day in 2011, is due to start on schedule this week,” chief executive officer Bill Gammell said on Tuesday after Cairn posted a first half loss. The fields will represent 20% of India’s domestic oil output.
Any delay to the export pipeline, as well as a second processing train, will be a “matter of weeks, not months”, Gammell said in a conference call with reporters. The timetable could be revised by weather-related events such as monsoons, he said. Mangala was first discovered five years ago.
“People are worried that it may be longer,” Jamie Maddock, an analyst at Collins Stewart Plc. in London, said in a phone interview.
Cairn traded 1.26% lower at 2,590 pence (Rs2,072) as of 6.55pm India time. It has risen 27% this year, giving the Edinburgh, Scotland-based firm a market value of £3.5 billion.
Upon completion, the Mangala processing terminal will have the capacity to handle 205,000 barrels of oil a day, Gammell said. “We’re focusing on realizing the full potential. We’ve been careful to build in the flexibility we need.”
The third and fourth trains are scheduled to be ready in the first half of 2010 and 2011, respectively.
Initial volumes from Mangala, located in Rajasthan, will be trucked to local refineries, the company said.
Prices agreed with the two buyers nominated by the Indian government represent a 10-15% discount to the average price of Brent crude oil during the first six months of the year. The explorer currently produces crude from a field off the country’s east coast and can sell the output at market prices, unlike state-run rival Oil and Natural Gas Corp. Ltd, which sells at a discount to state refiners.
The explorer is targeting the start of exploration drilling in Greenland in two years’ time. Cairn has five vessels carrying out surveys offshore Greenland after initial tests showed the area to have “multibillion-barrel resource potential”.
“They won’t drill that until 2011,” said Maddock. “It’s a long wait.” Cairn may have to spend as much as $100 million (nearly Rs490 crore) a well to develop fields in Greenland, he added.
Cairn posted a first half net loss of $60.9 million, compared with a profit of $361.7 million a year earlier. Sales fell 91% to $17.1 million.
Gross operated production for the first half was 68,941 barrels of oil equivalent a day, with Cairn’s daily entitlement amounting to 11,573 barrels, the company said.
The average price was $38.68 against $71.19 in the first half of 2008.