Cairn India’s flagship fields can’t produce oil beyond 200,000 bpd

Cairn hasn't specified by when its fields will reach peak level; shortfall may inflate crude oil import bill

Promit Mukherjee
Updated30 Oct 2014, 11:42 AM IST
In the absence of a robust increase in production from its flagship fields, it becomes increasingly difficult for the company to reach its once-ambitious target of crude oil production of 300,000 bpd. Photo: Bloomberg<br />
In the absence of a robust increase in production from its flagship fields, it becomes increasingly difficult for the company to reach its once-ambitious target of crude oil production of 300,000 bpd. Photo: Bloomberg

Mumbai: Cairn India Ltd, the oil and gas arm of Anil Agarwal-controlled Vedanta Resources Plc., has admitted that its flagship Mangala, Bhagyam and Aishwariya fields in the Barmer basin of Rajasthan cannot produce beyond 200,000 barrels of crude oil per day (bpd).

The admission came in a conference call with analysts on 21 October, the transcript of which was made available on the company’s website on Tuesday evening. However, the company has not specified by when the so-called MBA fields will reach that level.

According to previous estimates, the three fields together were to reach a peak output of 220,000 bpd by 2015 before flattening out. Mangala was expected to reach a plateau of 150,000 bpd, Bhagyam 40,000 bpd and Aishwariya has the government’s approval to reach 30,000 bpd. The volume of production a field can reach is first approved by the government.

“…the MBA plateau is roughly 200,000 bpd. We are looking forward to accelerating the polymer flood in Bhagyam (to enhance the recovery),” said Sudhir Mathur, chief financial officer and interim-chief executive officer, Cairn India. Mathur added that the process of enhancing recoveries from the Mangala and Bhagyam fields will be replicated for the Aishwariya fields too.

Cairn India is in the midst of a $3 billion capital expenditure programme out of which $1.6 billion will flow into activities to arrest a fall in production at its Mangala fields and implementing an enhanced oil recovery (EOR) programme across all three fields, according to the company’s corporate presentation released in May 2014. The remaining amount is being invested to develop new fields, such as the Barmer Hill hydrocarbon formation, and developing gas reserves in Raageshwari field, also in Barmer basin.

The EOR programme will mean that peak output from the fields would be between 180,000 bpd and 200,000 bpd, said Suniti Bhat, director, Rajasthan Oil, Cairn India during the conference call. This would be 9-18% lower than earlier estimates.

The newer fields are expected to contribute 10,000-30,000 bpd by fiscal 2017. However, Bhat also pointed out that the rate of growth from the newer fields will be slower as the geographies in Barmer are becoming more and more challenging.

A mail sent to Cairn India remained unanswered.

“When Cairn India started production from its fields in fiscal 2010, people asked questions on how much and by when will the production reach 300,000 bpd as the expectations were very high from the Barmer prospects. However, now the major concern is whether the production from Barmer will ever reach that level,” said Amit Agarwal, analyst with the brokerage arm of SBI Capital Markets Ltd.

He said the decline in Mangala is unprecedented, adding that any upside for the company would now depend on output from the new fields.

“The production from Mangala and Aishwariya and other fields declined by 12% q-o-q (sequentially) and 11% y-o-y (annually). The decline despite putting in two new fields—NI and Guda—into production in the quarter suggests that the decline in production at Mangala could be steep,” said Swarnendu Bhushan and Durgesh Poyekar, analysts with brokerage Elara Securities (India) Pvt. Ltd, in a report published on 22 October.

For the quarter ended September 2014, Cairn India registered average production of 163,262 barrels of oil equivalent per day (boepd, including gas), which included the impact of a nine-day maintenance shutdown undertaken in the second quarter.

In the last one year till 29 October, the stock of Cairn India has fallen by more than 9% from 315.55 per share to 286.15 per share. The benchmark S&P BSE Sensex has moved up by 29% and the BSE Oil&Gas index has risen by 22% over this period.

A 22 October report by JP Morgan Ltd, which has an “overweight” rating on the company, said that it has reduced the
company’s share price estimates for fiscal 2015, fiscal 2016 and fiscal 2017 by 12%,4% and 4%, respectively, to reflect lower year-to-date oil prices (for FY15), and assumptions on lower production and operational expenditure.

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First Published:30 Oct 2014, 11:42 AM IST
Business NewsIndustryEnergyCairn India&#8217;s flagship fields can&#8217;t produce oil beyond 200,000 bpd

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