November 19

Cairn Oil and Gas second quarter production disappoints; Cuts FY20 guidance

New Delhi: Vedanta-owned Cairn Oil and Gas, the country’s largest upstream player in the private sector, has posted a 4 per cent decline in average gross production to 178,744 barrels of oil equivalent per day (boepd) during the second quarter ended September 2019 as compared to the corresponding quarter a year ago, mainly due to operational issues in the flagship Rajasthan asset.

The production posted was much below the projections made by the company to investors during the release of first quarter (April-June) financial results when it had projected output to reach around 200,000 barrels of oil equivalent per day (boepd) by September end.

Post the company's first quarter financial results, it had projected production to reach in a range between 260,000 boepd and 270,000 boepd by the end of March 2020. However, that has has now been cut to 225,000 boepd in light of the operational issues.

Chief Executive Officer (CEO) Ajay Dixit told analysts during the company’s second quarter investor presentation that power-failure coupled with delay in capex projects has led to decline in production during the quarter and overall production guidance for the year.  




“In the oil business our guidance has been based on the development projects which we have been giving, in the past few months we had a couple of topics coming up simultaneously. One was a very significant power failure; besides normal decline we had certain failures in the asset because of this power failure. Once the total supply goes the entire reservoir sinks and it takes time to recover,” Dixit told analysts.

He said that delay in execution of capex projects also resulted in flat production. “Our exit-rate would be in the range of 225 and it will steadily go beyond that in the next year. You will start seeing an increase in production from January when the commissioning of surface facilities start coming up and more wells get hooked-up,” Dixit said.

The company had projected to hook-up 185 wells by the end of March 2020 during the first quarter of the current financial year but it has revised that projection downwards to 150 wells owing to operational issues.

“As far as guidance is concerned, on surface facilities we are well on track but we have been facing some delays when it comes to drilling of wells, due to surprises in the geology. From the previous guidance if you noticed we are down on the number of wells to be drilled,” Dixit said.

The oil ministry’s monthly production report has flagged deficit in production from Cairn Oil and Gas’ Rajasthan fields over the past year due to delay in upgrading of Mangala Processing Terminal (MPT), delay in hooking up online of 45 infill wells, closure of wells, as well as operational issues in Bhagyam, Aishwariya and ABH fields.

Dixit had in October told ET EnergyWorld in an interview the company remains confident of achieving 260-270,000 boepd of production by end of March 2020.

“We are not giving up on the exit rates so far. There are two parts of this. One, what we are currently producing could it have been better? The answer is yes. Where are we facing the problem? We are facing problems in the infrastructure part. We had a transmission line failure recently; we have only one incoming line from Rajasthan State Electricity Board, it collapsed. We have had a number of such failures happening repeatedly, in Bhagyam field and Rajashtan, this is one of the problems we face,” he had said. The CEO also said that a major jump in production is expected to come from the turnkey projects which are under implementation including drilling and hooking-up of wells and connecting them to the surface facilities.

The company has said in its second quarter investor presentation it is investing close to $3.2 billion on blocks under Production Sharing Contracts (PSC) and $0.8 million on 51 Open Acreage Licensing Policy (OALP) blocks. The firm plans to drill 250 wells, hook-up 150 wells, and increase liquid handling capacity to 1.25 million barrels of liquid per day (mblpd) from 1.10 mbldp currently and expand gas processing capacity to 150 million standard cubic feet per day (mmscfd) from 80 mmscfd currently.

Dixit had told ETEnergyworld in order to increase production in the near-term, the government should take some of the best practices or guiding principles from Hydrocarbon Exploration Licensing Policy (HELP) as well as Open Acreage Licensing Policy (OALP) and apply those to the current Production Sharing Contracts. He said multiple layers of administrative approvals cause the country to lose probable and potential resources and self-certification will help companies to produce faster.

Commenting on the status of blocks won under OALP and environment clearances, Dixit said: “We do not want to avoid any process but the question also is whether for just exploration do you need to undertake land acquisition? Our request therefore is something must be done on the regulatory side and land acquisition must not be made mandatory for exploration or for data collection.”


He informed Cairn had received environment clearance for 14 of the 51 blocks won under OALP and it may be unreasonable to expect them to start producing within 2-3 years.

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