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Cairn wants 'more data' before upgrading Kraken

Non-operating partner in Enquest oil project says not prepared to change its views of reserves just yet

Cairn Energy wants to see more production data before it changes its view of reserves in the Enquest-operated Kraken oilfield after the Edinburgh-based company downgraded its figures earlier this year.

Releasing first-half results on Tuesday, Cairn said recent performance at Kraken was “significantly improved”, one factor in a decision to upgrade the group’s annual production guidance.

However, an executive said Cairn would not yet be making positive revisions to its reserves figures at Kraken.

In March, Cairn said it had cut its estimates of the UK North Sea heavy-oil field’s proven and probable reserves by 6.8 million barrels of oil equivalent, about fifth, to 29 million boe.

EnQuest denies Kraken downgrade

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Cairn said at the time production in 2018 from Kraken, where it holds a 29.5% working interest — had been below expectations, although Enquest responded by insisting its estimates remained “materially unchanged”.

Speaking on a call to analysts this week, Cairn chief operating officer Paul Mayland said: “We fully respect all the views in the Kraken family.

“I think across it we are all striving to improve production potential and maximise economic recovery."

Mayland said it should be recognised that “reserves are estimated, they are never determined”.

“We carry a range of estimates — P90, P50 and P10 — and, of course, we chose and believed it was prudent at the time and remains prudent to reduce our P50 estimates, which we did back in March,” he said.

“We would like to see longer production data in terms of water-cut trend and overall performance in the field before we make any revisions actually, which we would do as a matter of the normal course of business on a six-monthly basis.”

In the first six months of 2019, Cairn’s net production averaged 23,700 barrels of oil equivalent per day, up 15% on the previous six months.

Cairn said so far in the third quarter there has been “significantly improved facilities performance” at Kraken and “exceptional uptime” at the Premier Oil-operated Catcher development, where it is also a non-operating partner.

As a result, it was upgrading its full-year production guidance to 21,000 to 23,000 boepd compared to 19,000 to 22,000 boepd previously.

At Kraken, average gross production in the six months to the end of June was more than 32,700 boepd.

As well as the improved facilities performance, new wells — at DC4 — have come online, resulting in “more continuous periods with production rates above 40,000 boepd being achieved”.

Cairn noted that additional drilling was coming into range in the western of the Kraken field where development drilling of a producer-injector pair of wells through spare capacity in the existing DC2 subsea infrastructure is planned for 2020.

Analyst Ilkin Karimli at Berenberg said in a note to clients: “Recall that Cairn wrote off 19% of reserves at Kraken at the end of 2018 due to weak operational performance.

“We believe Cairn may revise its reserve estimate higher if good operational performance continues.

Analysts at Davy said: “Cairn Energy delivered a very solid first half, beating expectations on a number of fronts and also scoring highly on performance metrics.”

Cairn said production from Kraken averaged 30,300 barrels of oil equivalent per day in 2018, which was below expectations.

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