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«MR. SUDHIR MATHUR – INTERIM CEO, CAIRN INDIA LIMITED MANAGEMENT: MR. SUNIL BOHRA – DY. CHIEF FINANCIAL OFFICER, CAIRN INDIA LIMITED MR. DARRAN ...»

-- [ Page 1 ] --

“Cairn India Limited’s Q1 FY15 Earnings Conference

Call”

July 23, 2014

MR. SUDHIR MATHUR – INTERIM CEO, CAIRN INDIA LIMITED

MANAGEMENT:

MR. SUNIL BOHRA – DY. CHIEF FINANCIAL OFFICER, CAIRN

INDIA LIMITED

MR. DARRAN LUCAS – DIRECTOR, EXPLORATION, CAIRN INDIA

LIMITED

MR. B. ANANTHAKRISHNAN – DIRECTOR, GAS, CAIRN INDIA

LIMITED

MR. SUNITI BHAT – DIRECTOR, RAJASTHAN OIL, CAIRN INDIA

LIMITED

MS. NIDHI AGGARWAL – HEAD, INVESTOR RELATIONS, CAIRN

MODERATOR:

INDIA LIMITED

Page 1 of 20 Cairn India July 23, 2014 Ladies and Gentlemen, Good Day and Welcome to the Cairn India’s First Quarter FY15

Moderator:

Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode.

There will be an opportunity for you to ask questions after the management’s presentation concludes. Should you need assistance during the conference, please signal an operator by pressing ‘*’ then ‘0’ on your touchtone phone. Please note that this conference is being recorded. I would now like to hand the conference over to Ms. Nidhi Aggarwal – Head of Investor Relations at Cairn India. Thank you. And over to you Ms. Aggarwal.

Nidhi Aggarwal: Thank you, and hello, everyone. I thank you all for joining us on this call late in the day. Our results for the quarter ended 30th June 2014 have been released and I hope you had a chance to go through the same. I have some of the key members of the company’s leadership team to present the highlights of our quarterly performance and the way forward. At the end of the presentation, there will be a Q&A session for your benefit.

Just a mandatory note – before we begin the session, some of the statements made in the call today could be forward-looking in nature. A detailed disclaimer in this regard has already been included in our presentation that has been shared on our website www.cairnindia.com. Kindly refer to the same. The entire call is being archived and the transcript would be available on the company’s website later. I will now hand over to Mr. Sudhir Mathur – Interim CEO for his opening remarks. Sudhir Sudhir Mathur: Thank you, Nidhi. Good Evening, Ladies and Gentlemen. Thank you

–  –  –

I am delighted to introduce to you Darran Lucas from BHP as Director, Exploration at Cairn India. Darran joined us in June this year and brings with him rich experience spanning 30 years in exploration, new ventures, and asset management, including shale. Recent additions to the senior management team include Anshuman Sharma as General Counsel, Greg Edmonds as Director, Subsurface, and Anwar Husen as Head, Petroleum Engineering. The relentless pursuit of our objective is already showing strong and powerful results.

Let me start with exploration on the next slide. We had set a target of drilling 3 billion barrels over three years. At the end of this quarter, we have established 1.2 billion and additional 0.6 billion is currently under evaluation. We have accelerated this exploration and appraisal

–  –  –

program and target to finish most of the drill out in the current financial year that is FY15 significantly ahead of schedule. Our exploration team continues to deepen our faith in the Rajasthan block. As a consequence of the detailed work done by the team, we double our guidance of hydrocarbons in-place from 3 to 6 billion.

We are really excited that gas is likely to be around 15-20% of the resource base currently being drilled. With urgency, the gas SBU led by Ananthakrishnan is diligently detailing out a plan to ensure gas is a substantial part of Cairn’s near future. This involves doubling our gas production volumes by the end of the year and to around 100 million cubic feet per day by FY17.

During the quarter, our gross production was approximately 20 million boe from the three producing assets.

Moving to EOR and Oil, much as it is an ambitious target to execute approximately $600 million and one of the world’s largest EOR project in 12 months, we are confident of the first injection in Q4FY15, as we have guided earlier. Most elements of the central polymer facility are already at site, two high performance rigs are ready to start drilling and the polymer itself has been ordered to initiate injection by the end of the financial year. We are on track to extend the enhanced oil recovery to our Bhagyam and Aishwariya fields as well. As a more long-term step, in tertiary recovery we initiated ASP injection as a part of the Mangala ASP pilot and have received some encouraging early results this quarter. After a cautious start, we have exponentially stepped up our exploitation of the tight reservoir. A combination of horizontal and vertical wells have been drilled and fracked. The initial production rates have been encouraging and as per expectations. Results from these will improve our understanding of these tight reservoirs and its economics creating a larger game plan. The MPT debottlenecking project is on track to achieve liquid handling capacity greater than 800,000 barrels of liquid per day by Q3FY15 to be further augmented to 1 million barrels per day in the next phase.





On the financial front, we have recorded revenues of Rs.45 billion, 10% higher year-on-year.

EBITDA margin was at 70% and PAT at 61% excluding one-time exceptional item. Cash flows from operations was at Rs.28 billion, reemphasizing our strong cash position ahead of a robust CAPEX plan and significant opportunities yet to emerge from our increase in guidance of an additional 3 billion in-place volumes.

During the quarter, we entered into a facility of US$1.25 billion to Vedanta Group company, of which $800 million has been disbursed during the quarter for a period of 2 years. The loan has been extended as significantly more appealing investment yielding much higher returns than our current dollar deposits. We closed our share buyback program on 22nd July and have reduced the equity base by 1.9%. I would now like to hand over to Darran to take you through our “Exploration Highlights” for the quarter.

–  –  –

B. Ananthakrishnan: Thank you, Darran. Referring to Slide #9, I will now provide you an update on the growing gas resources base and development plans. The Raageshwari Deep Gas Field is estimated to hold around 1-3 Tcf of gas in place. Recovery factors of over 50% have been achieved from similar site reservoirs elsewhere in the world. In addition to the Raageshwari Deep Gas field, the

–  –  –

ongoing exploration reserves are encouraging and indicate the presence of a multi-Tcf gas resource base in and around Raageshwari Deep Gas Field.

In terms of the “Development and Production” the current production volumes from the Raageshwari Deep Gas Field would be doubled through the installation of compressors by the end of financial year ’15. The field development plan addendum to increase gas production from the Raageshwari Deep Gas Field to around 100 million scf per day has already been submitted. Technical alignment has been reached in the most significant areas of resource base and production forecast. The field development plan includes the drilling of additional wells, facility upgrade and laying of a new pipeline to evacuate gas to the existing pipeline network. It is estimated that the additional sales of gas from the Raageshwari Deep Gas Field can be achieved in financial year ’17 subject to timely approvals.

Considering the significant multi-Tcf gas potential in the block as mentioned by Darran, we have sought Government of India approvals to lay a 30-inch gas pipeline from the block to connect the existing gas grid in Gujarat. The front end engineering and the tendering process for the facilities augmentation, supply of long lead items and pipeline construction are all underway and we hope to award the major contracts within next six months.

And I now invite Suniti – Director, Rajasthan Oil for an update on the overall company operations and RJ development projects.

Thank you, Ananth. Moving to Operations – Slide #10, I would like to begin with our

Suniti Bhat:

commitment on the highest international standards of HSE and I am proud to reiterate that as per OGP Report 2013, we figure in the top quartile list. In our operating assets for Q1 FY15, our LTIFR stands at 0.6, primarily driven by nine incidents caused by control failure by our contractor workforce. With an objective to prevent recurrence of such incidents, “Know Your Hazard” awareness program has been successfully launched at our site. We will continue to maintain our focus on safety as our operations ramp up.

Our company’s total gross operated production including internal gas consumption was at 227 kboepd. The gross operated production was at about 218 kboepd with Rajasthan block producing 16.7 million boe in this quarter. This was at gross average production of over 183,000 boe/d, primarily impacted by an unplanned outage at the processing terminal MPT.

At this point, I would like to inform you that we are planning a routine operational and statutory maintenance shut down at the MPT processing terminal for around 10 days in August

2014. Though this could impact the daily gross average production rate for Q2FY15, we would be utilizing this opportunity to create tie-ins for ongoing new facility enhancements and development projects for future growth.

–  –  –

I would also like to point out that last year we carried out an independent third-party assessment for Rajasthan operations and we were rated in top quartile for technology deployment and operational excellence.

The other two producing assets helped sustain overall volume in the quarter with Cambay posting 15% quarter-on-quarter production growth.

Moving to next slide #11, development activity is proceeding in full swing in Rajasthan, with a clear focus to deliver on our production guidance of 7-10% compound annual growth rate from known discoveries and a reserve replacement rate of 150% over next three years subject to PSC extension to 2030.

Let us start with MBA field update on next slide #12: We are on track to deliver for first polymer injection at Mangala field in Q4 FY15 which will be one of world’s largest polymer flood projects. Most of the major equipment have arrived at site or is on the way. Construction of all major surface facilities including the central processing facility, extended pipelines and well pad modifications have already commenced. Two dedicated EOR drilling rigs are in the field and we have commenced drilling. Alkaline Surfactant Polymer Pilot at Mangala has yielded encouraging results with water cut and oil trends suggesting mobilization of unswept oil in the reservoir. We should have final results from this pilot available in Q1FY16 and we are very excited about this pioneering technology. We look forward to implement this on a larger scale across MBA fields. Work continues on infill drilling in Bhagyam and we have already filed polymer flood FDP with our joint venture partner. We expect this to be the next field to be put on polymer flooding. Aishwariya has performed significantly better than original model prediction and we are already producing well over 20,000 barrels of oil per day from this field. Based on these encouraging results, we plan to implement infill drilling programs from Q4FY15 followed closely by early EOR.

I am also happy to note that quarter has seen highest operating rigs in the history of company with 12 exploration & development rigs and 6 completion rigs working across our portfolio. 5 of the drilling rigs are dedicated for exploration activity in the Rajasthan block, all indicating to the large scale of operations underway.

Turning to the next Slide #13, we have also achieved initial success in Barmer Hill and satellite field development projects. Horizontal well drilling and fracking operations have already commenced in Rajasthan. Working along with our global service providers, we undertook large scale hydraulic fracking of tight reservoirs and successfully used more than 250,000 pounds of proppant in one of the last frack. We have also started production from Mangala and Aishwariya Barmer Hill. Initial production rates from both these Barmer Hill fields have been encouraging and we will continue to monitor the IPs of these wells to fine-tune the program.

With better understanding of Barmer Hill reservoir and fracking operation by next quarter we plan to drill many more vertical and horizontal wells to aid production volumes. Three of our

–  –  –

satellite fields have now contributed to the production volumes, and we expect NI and Guda to start production in the current quarter. Our vision is to scale up the Barmer Hill and Satellite fields using North American development model to drive volume growth. I would now request Sunil Bohra to provide the financial updates for the quarter.

Sunil Bohra: Thank you, Suniti. During Q1 FY15, the net consolidated revenue stood at Rs.44.8 billion, up by 10% year-on-year, with 3% higher volumes and further bolstered by a 4% higher realization.



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