Highlights from the Cairn presentation transcript

Here's some highlights ... all very positive or even ebullient )for Scots!): (my bolding)

Cairn Presentation webcast highlights:

Economics

Finally on SNE economics, this slide here sets out the results of that development plan in the context of breakeven oil prices for other projects globally, it’s taken from the Goldman Sachs study of international upstream projects which we’ve screened for development phase projects, and you can see SNE ranks extremely highly on that list in terms of its ability to attract industry capital. And as Paul will come on to outline in a bit more detail, whilst SNE is normally a deep water development, the operating environment, the geological characteristics and the fiscal terms altogether combine to mean that it actually ranks above many shallow water orshallower water development projects and even some onshore ones in terms of its economic attractiveness.

Richard Heaton

We can see that everywhere we drill those five wells we have good quality reservoirs and better than perhaps one would normally predict in these age of rocks and type of rocks, but it’s very consistent, and shown on here, just one of the reservoir layers in the upper levels of the reservoir. Right across the field we always find sands, we always find them of good quality, we can actually tie them very accurately on the seismic data, we have new seismic data and we process seismic data now that ties very well across the field, and we can use the amplitudes from the seismic data as shown on that little map to almost differentiate between where there's gas, where there’s oil and water, and some of the internal features of the rocks there.

We’ve recovered a huge amount of core data, every bit of core that we try to capture we recover back to the surface, we have 600 meters of rock in the laboratories in Aberdeen and elsewhere being analysed, it allows us to really characterise the reservoirs of the field very, very accurately. Now that work takes a long time to complete, it’s a huge amount of data, we integrate that with all the log data that we’ve got from these wells as well. It’s a fabulous database to work with and we’re still working through it.

What that means is we are able to confirm a great deal more certainty now about the field, we’ve got great information that allows us to understand how it’s put together, and essentially as we said and saw in SNE-1 the reservoirs are best at the bottom and then we have lower reservoirs above that, the finer grained and slightly thinner reservoirs above that. We’ve got good test results out of both though, the lower reservoirs, 8,000 barrels a day out of one test and in the upper reservoirs 5,000 barrels a day. Those are great test results for anywhere, some of the better ones that you’ll see along the West African margin.
In the test that flowed 5,000 barrels a day from the upper reservoirs, some slight pressure depletion which shows that the connectivity there is not quite as good as in the lower reservoirs, and that will be a feature of trying to understand that uncertainty when we come to the next phase of appraisal.


So the resource base is hugely improving as we go through, for the first time here giving the figures on where we were at March with the associated in-place oil, the STOIIP, and today’s estimates are independent estimates given by ERC-Equipoise, demonstrating if you like the consistency between our own and an independent auditor’s view.
And we’ve now got over 2.7 billion barrels in place at the 2C level and a recoverable resource out of that of 473. And you can see it’s a wide range, these are probalistic estimates, this is trying to take into account still the very large variation there is in the field, because we’re still really at the relatively early stages, only 18 months after discovery, of trying to piece together what is now a very large field. But it’s a great story, what we will be doing with the next wells is trying to understand better the connectivity and make a yet more informed decision about how best to develop the field and what sort of field development plans put in place, and Paul will go on to explain some more of that.

Question 1

I've got two questions, both on Senegal. Firstly thanks for the oil in place figure that's helpful. Is it possible to give an indication of the split of recovery factors between the lower reservoirs and the upper ones; taken in aggregate at the moment it looks like quite an undemanding 18% or so but I suspect there's quite a wide variance there?

Answer:
Richard Heaton

Obviously the lower reservoirs do have higher recovery factors in fact the upper reservoirs there are many layers in those. Some of those we expect to be able to water flood, others may ultimately simply be depletion production on some layers.
In fact that's obviously where the upside lies within the range of volumes that we have and that is essentially what the focus of much of the appraisal in the next phase is going to be. So for us to be able to find out answers for those is really the aim there.

So it’s a little bit early to give out specifics but essentially the lower ones as you point out will have better recovery factors.

Question:
And maybe the last one if I can, just a slightly different point here, you talk about the breakeven of the project given that the oil price is US$45 today would you FID this project at this oil price?

Answer

Simon Thompson
Yes ….

Question 3
Firstly, on the Conoco sale I think overall the valuation was pretty disappointing to what the market was expecting. I know you can't specifically comment obviously on Conoco but I think what was more surprising was that industry interest was low in that despite the low price there wasn’t actually other players that were prepared to pay up and get into the licence, given certainly the outline of the developing economics that you suggest. So in that context could you maybe talk a bit about what Cairn plans from a farm out perspective and a monetisation perspective, clearly you've got what some 300 or so million dollars of capitalised costs in Senegal, at what point do you look to try and sell down and bring in other partners to help fund the full development?
And then just a quick follow-up on the development planning how many wells does that development plan assume, I guess trying to get an understanding of the expected recovery per well that you assume in your guidance?

Simon Thomson
Let me cover the first part of that question and maybe Paul can come on to the second part. Don’t assume that there isn’t a lot of industry interest in this field. There aren’t very many half billion barrel fields out there at the minute in terms of new plays with more upside potential around it. And there were particular circumstances as you know in respect of Conoco effectively exiting a number of deep water positions. So arguably in the current oil price environment that doesn’t give you the best environment for achieving the best price.

But I think from our perspective it doesn’t diminish industry enthusiasm and I think our job, as we’ve said before, is to continue to ensure that we have sufficient financial flexibility and indeed as we talked about the rig contract, rig flexibility to ensure that we can continue for as long as we think’s appropriate before we think it’s the right time to divest equity. And certainly at the minute we’re under no pressure to do that. It remains an option. As I say there is industry interest.
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So in summary: The field is huge and growing.  The economics are excellent.  Ther sands are excellent across the field ... consistently higher quality than expected.  Although the thinner sands showed a "slight" pressure drop on test ... it was only slight. There is industry interest in the field outside of WPL.  Flow rates were good for anywhere in the world.  The thinner upper reservoirs are where there is significant upside (as suggested by CN) and that will be a focus of the next appraisal drilling.  They have 2 potential exploration targets being considered ... Sirius nad a valley floor fan structure.

Simon Thompson indicated they would FID this field at current oil price and economics ... so we have the operator giving it a de facto DoC.  And by my reading he didn't actually answer the question of whether Cairn will pre-empt .. he just said that they welcomed WPL for its deep water expertise.

H