Cairn Energy said its large Indian oilfields would begin producing oil this week, but warned on Tuesday that meeting targets for the next stages of the development was becoming "increasingly challenging". Cairn, which also reported a swing to a loss in the first half, said the target for completing the second processing train at the Mangala field in Rajasthan and an associated pipeline remained the end of 2009, despite the challenges.
"If there is any delay it will be a matter of weeks rather than months," Chief Executive Bill Gammell said on a webcast. Shares in the FTSE 100 oil producer were down 1.6 percent at 2,581 pence at 0930 GMT, underperforming a 0.5 percent dip in the DJ Stoxx European oil and gas sector index. "Positive news at first oil from Mangala by the end of this week is likely to be overshadowed by further flags raised surrounding pipeline commissioning by end-09," said Citi in a research note.
Cairn India said on August 18 it will start pumping crude from its Rajasthan fields later this month with initial production of 30,000 barrels per day. "Much of today's news on India should already be factored in by the market as the chairman of Cairn India Limited spoke last week," said Evolution Securities.
Cairn reported a first-half loss after tax, before exceptional items, of $20 million compared with a profit of $17 million in the year-earlier period. Revenue dropped 55 percent to $81 million on lower oil prices and output. Numis Securities said the results were broadly in line with expectations, although its valuation was stretched given ramp-up delays.
The third and fourth trains at Mangala are scheduled to be completed in the first half of 2010 and 2011 respectively, Cairn said. "There will be a lot of uncertainties on individual milestones," said Rick Bott, chief operating officer of unit Cairn India, on a webcast. There is "uncertainty around the production ramp up," he added, noting that monsoon rains continue to pose risks to the schedule. Cairn is developing the Mangala, Bhagyam and Aishwariya fields in Rajasthan.
"The current planned plateau production from the key fields is 175,000 bopd and we believe there is substantial scope for further growth from the existing fields," said Gammell. The group's net cash stood at $631 million at the end of June from $1.18 billion at end June 2008. Finance Director Jann Brown said the company had sufficient cash to complete its development projects but that it would likely return to the debt markets when the price of debt improves.