Vedanta Resources plc Annual Report & Accounts 2013

Operational Review:

Oil & Gas

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Ravva offshore terminal, Cairn India.
Production performance

(In US$ millions, except as stated)

Unit
FY
2012–13
FY
2011–122

% change
FY
2011-121
Gross production boepd 205,323 172,887 18.8% 178,041
Rajasthan boepd 169,390 128,267 32.1% 134,965
Ravva boepd 29,161 36,379 (19.8)% 35,265
Cambay boepd 6,772 8,242 (17.8)% 7,810
           
Oil bopd 195,780 160,635 21.9% 165,246
Gas mmscfd 57 74 (22.1)% 77
Net production          
  – working interest boepd 127,843 101,268 26.2% 105,534
Oil bopd 125,306 97,980 27.9% 102,178
Gas mmscfd 15 20 (22.8)% 20
Gas production mmboe 74.9 63.3 18.4% 20.5
Working interest production mmboe 46.7 37.1 25.9% 12.1

1 Data from 8 December 2011 to 31 March 2012.
2 FY 2011–12 data are for Full Year.


Operations

Gross production during the year was 205,323 boepd 18.8% higher than the corresponding period  last year. The increase was primarily due to a 32.1% increase in production at the Rajasthan
block. The Rajasthan block is currently producing oil from five of its oil fields, specifically; Mangala Aishwariya, Saraswati, Raageshwari and Bhagyam.  Current production is ~175,000  bopd. In addition, we commenced commercial sales of gas. Production at the Aishwariya field started in March 2013 and reservoir performance has been in line with expectations. The field is expected to ramp up to 10,000bopd in coming months as additional wells are drilled and completed.

Resource base

Following the GoI clarification on conducting exploration activities in development areas, Cairn India spudded its first exploration well Raageshwari- South-1 in the southern part of the Rajasthan block. This resulted in an oil discovery which is the 26th discovery made in the block so far. The volumes of oil in place and the potential resource base associated with this discovery are under evaluation.

The Company plans to undertake an aggressive exploration and appraisal (‘E&A’) drilling programme in the block with 100 wells planned in a three year period. These wells target gross recoverable risked prospective resources of 530 mmboe.

Efforts to monetise 20 other discoveries (including Barmer Hill) in the block are ongoing. Development plans have also been submitted for two other satellite discoveries in the block: NI field and NE field.

Post the Mangala enhanced oil recovery (‘EOR’) polymer pilot, a field development plan (‘FDP’) for a full field application has been submitted to the Joint Venture Partner (‘JV’). The JV partner is technically aligned to the application of EOR in the field and expected to start in FY 2014–15.

Financial performance

(In US$ millions, except as stated)
FY
2012–13
FY
2011–121
Revenue 3,223.4 882.5
EBITDA 2,439.7 713.0
EBITDA margin 75.7% 80.8%
Depreciation 600.4 180.2
Acquisition related amortisation 834.5 166.5
Operating (loss)/profit1 1,004.8 366.3
Share in group operating profit (%) 40.0 15.0
Capital expenditure 423.6 161.2
   Sustaining - -
   Projects 423.6 161.2

1 Data from 8 December 2011 to 31 March 2012.


EBITDA during the year was US$2,439.7 million mainly due to increased production from the Rajasthan block. Operating profit for the period was US$1,004.8 million.

The Rajasthan field direct operating expenses including transportation was US$3.2/bbl for the year.

Under the petroleum profit regulations, Cairn India shares its oil profits with the GoI after recovering its share of costs as per the terms of a production sharing contract. The petroleum profit is paid on a quarterly basis to the Government of India.

The profit petroleum of the Rajasthan block net to the Company) was US$518 million during the year.

Exploration

After a long hiatus, the GoI provided policy clarity to allow exploration activity in development blocks and this enabled Cairn India to move quickly to unlock the full potential of the Rajasthan Block. Cairn India immediately embarked on an intensive exploration programme which met with its first success – the 26th discovery in the block, which further reaffirmed that this world class block has significant untapped potential. During the year, in addition to our renewed exploration efforts in Rajasthan, our focus was on increased exploration activity across the asset portfolio to harness the remaining potential of producing blocks, including Ravva and CB/OS-2 and other exploration acreages. In Sri Lanka, data from both exploration phases is being evaluated and integrated to fully understand the block’s future potential as options are being evaluated to monetise the discovered gas resource.

In the Orange Basin in South Africa, following an assignment of 60% operating interest in ‘Block 1’, exploration operations have commenced.

Outlook

With the Rajasthan Block current production is at ~170,000 bopd, FY2013–14 exit production rate is expected at hit 200,000– 215,000 bopd. The Aishwariya field is expected to ramp up to the approved FDP rate of 10,000 bopd over the next few months and the Bhagyam field is expected to ramp up to the approved FDP rate of 40,000 bopd in H2 FY2013–14.

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Raageshwari gas terminal at Rajasthan, Cairn India.

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Engineers at Mangala Processing Terminal in Rajasthan, Cairn India.
map
Key achievements
  • Record full year gross production up by 18.8%, driven by 32.1% higher output at the Rajasthan block
  • Commenced production from Aishwariya field and gas sales from the Rajasthan block
  • Re-commenced exploration drilling in the Rajasthan block and made the 26th discovery in the block
  • Infill drilling campaign in the CB/OS-2 block completed successfully; resulting in doubling the production potential
  • Farmed-in to the PetroSA ‘Block1’ in the Orange Basin, offshore South Africa, with 60% interest and operatorship
Strategic priorities

Rajasthan:

  • Achieve production rate of 200 – 215,000 bopd
  • Test ~50% of Prospective Resources volumes
  • Leverage Gas Sales Potential

Other Blocks:

  • Appraise KG-ONN-2003/1 block potential
  • Ravva: Drill ‘high risk, high value’ prospect
  • Commence exploration operations in offshore assets KG-OSN-2009/3, PROSN- 2004/1 and MBDWN- 2009/1
  • Sri Lanka: Evaluate options to monetise discovered gas resource
  • South Africa: 3D survey acquisition to be completed within Q1 FY 2013–14 operations
Production (mmboe)
Graph
EBITDA (US$m)
Graph
Case Study:

Oil & Gas

With Cairn India’s successful exploration programme resulting in 26 hydrocarbon discoveries in the Rajasthan block to date, large volumes of water (more than 50,000 cubic meters per day) will potentially be required to maximise oil recovery of this generally viscous crude. Sourcing this volume of water in a desert without an adverse impact on the local community and environment posed a daunting task. The challenge was to find a saline water source, which was not used as a resource by the local community and would not affect the fresh water aquifer in the area.

As a part of the project, freshwater and saline water aquifer systems more than 1,000m below ground level were mapped, modelled and quantified. Seismic data, petrophysical logs; drilling and well test data were used to understand the sub-surface hydrogeology of the Barmer Basin and a huge saline water resource was identified.

Real-time aquifer monitoring had been installed, which has reinforced confidence in the saline abstraction amongst the regulator and stakeholders by demonstrating that the saline well field has had no impact on the fresh water zone located 25km away since it came into operation in 2010.

image
Ravva offshore terminal, Cairn India.
image
Ravva offshore terminal, Cairn India.
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