Value Creation through Oil & Gas projects in India
Presentation by Dr Mike WattsCo-Founder and CEO of Magna Energy
India Discovered Small Field Bidding Round : 2016
London Roadshow, September 12th 2016
Disclaimer
By continuing with the Presentation, each recipient agrees to be bound by the limitations set out below.
This presentation and any accompanying discussion or correspondence relating to this presentation (the Presentation) is provided on a strictly confidential basis and for high level guidanceonly, as a basis for further discussions at the Houston and Calgary roadshows supporting and promoting the Indian Discovered Small Field Bid Round launched in 2016.
No reliance may be placed by any person on any information in the Presentation or in any accompanying discussion or correspondence relating to the Presentation. The provision of thePresentation does not constitute, nor is it intended to constitute an invitation or inducement to engage in any transaction or investment activity or to enter into any legal obligation, contract,agreement or arrangement in any jurisdiction, whether in the United Kingdom, Canada, India or elsewhere.
The information in the Presentation is not, and does not purport to be comprehensive. It has been prepared by Dr Michael John Watts and expresses his personal views as an individual and notas an authorised delegate or representative of Magna Energy Limited (the Company). The content of the Presentation has not been independently verified and no representation, warranty,assurance or undertaking (express or implied) is or will be made, and no responsibility or liability is or will be accepted by the Company or by its officers, employees or agents in relation to theadequacy, accuracy, completeness or reasonableness of the Presentation or any other information (whether written or oral), notice or document supplied or otherwise made available to anyrecipient. All and any such responsibility and liability is expressly disclaimed.
The preparation and issue of the Presentation shall not be deemed to be any form of commitment on the part of the Company to proceed with any bid, contract, agreement or transaction,whether on any indicative terms described in the Presentation, any accompanying discussion or otherwise. The Company gives no undertaking to provide additional information to update thePresentation, or to correct any inaccuracies that may become apparent in the Presentation or in any related discussion or correspondence.
Elements for E&P Success in India
Industry Passion and belief in Indian geology and its potential Technology Capital Relationships, knowledge & expertise
Government of India Positive Policy Changes
Revenue Sharing DSFR Contracts – avoids cost recovery disputes Free market gas pricing
Fiscal stability
Magna Energy Limited (Magna) is a start-up company founded by Jann Brown and Dr Mike Watts, initially backed by two seed investors.
Private Equity funding commitment in June 2015 from Carlyle International Energy Partners (CIEP) to invest in Indian E&P Opportunities
Sundeep Bhandari has joined Magna as part of the core Management Team
Key growth targets:1. Indian production / development opportunities2. Discovered Small Field Bidding Round (DSFR)
Bids to be submitted October 2016; awards December 2016
Magna Energy
SanguLargest offshore gas field HSS / Cairn (HBR & Shell transactions)
Bangladesh (1991 – 2007)
YetagunSecond largest offshore gas field Premier
Myanmar (1988 - 1990)
Songkhla andBua Ban DiscoveriesPremier
Thailand (1986 – 1990)
Premier, SOCO International - TGT
Vietnam (1988, 1996, 2008/16)
Mongolia (1994 – 1995)
Tamstag BasinSOCO International
INDIARajasthan (1996 – 2011)
>27 Oil and Gas Discoveries >7 billion boe in place180,000 bopd (~240,000 bopd potential) Cairn
4 Oil & Gas Discoveries & developmentsHSS / Command / Cairn
INDIA Gujarat (1992 – 2011)
Ravva Oilfield Developed >300 mmbblsBurmah / HSS / Command / Cairn
INDIAKG Basin (1986 – 2011)
HSS / Command / Cairn /SOCO
Yemen (1994 – 1997)
QadirpurSecond largest gas field in PakistanBurmah / Premier
Pakistan (1986 – 1990)
INDIAKG Basin (1999 – 2011)
6 Deep Water DiscoveriesCairn (ONGC transaction)
A Conventional Career Close association with value creative projects across South Asia
Cairn Operator (JV ONGC, Videocon & Marubeni) 8 platforms installed in record time Onshore processing terminal in record time First matching price gas contract in India Oil sold at Brent price Reserves taken from 90 mmboe to >300 mmboe Peak production 70,000 boepd > 50,000 bopd plateau for > 9 years Direct operating cost/bbl amongst lowest in world > 300 million barrels of oil produced to date 20 years of continuous operations completed
Ravva(India’s Flagship Offshore Project under PSC)
Appraisal, Development and Production
ProcessingPlant Ravva
SPMOil Sales Point
Ravva – a UK / India success story
KG Basin
Cairn Energy (2001)Lakshmi deep >10,000 bopd
Cairn developments and discoveries block 98/2
Reliance BP Niko
GSPC
KG Basin Deep Water Discoveries
Cairn 5 deep water discoveries in Block 98/2 98/2 sold to ONGC Reliance discovers and develops Dhirubhai in Block 98/3 Reliance sells 30% interest in 98/3 to BP for > $7 billion ONGC expected to invest $5 billion in 98/2 developments
Cambay Basin
Cairn discovers and develops Lakshmi and Gauri
Cambay + KG Deep water - UK / India success stories
Mercator discovery 2015
Source: Wood Mackenzie
Source: Wood Mackenzie
Aishwariya
Mangala
OilGas
Raageshwari
Mangala Processing Terminal
Bhagyam
GUDA
RAAGESHWARI GAS
RAAGESHWARI OIL
KAMESHWARI
SARASWATI
GS-V-1
GR-A-B
W-A-A
GUDA-C
WT-B
WT-A
N-F-EAST
N-K-1
N-X-AN-L-B
N-Y-B
N-W-B
N-T-A
N-V-H
N-M-A
AISHWARIYAN-A-3N-A-4
N-A-5MANGALA-3, 6
MANGALA-1ST
MANGALA-5
BHAGYAMN-V-F
N-V-BN-V-C
N-V-E
N-V-J
N-V-K
N-C-3
N-V-I N-C-I
N-C-J
N-C-L
N-C-D
N-V-G
N-C-H
N-C-G
N-C-FN-H-1
N-C-E
N-C-2MANGALA-2
MANGALA-4N-D-1NC WEST OIL
NC WEST GAS
VIJAYA & VANDANA
N-R-B N-R-4
N-P
N-F-1
N-I-NORTH
SHAKTI
BHAGYAMSOUTH
KAMESHWARI WEST
MANGALA
Rajasthan (Cairn Flagship Onshore Project)Exploration Vision to Production Reality
Exploration & Appraisal
Development & Production
Rajasthan - a UK / India success story
Mangala – the largest onshore find in India in 25 years > 27 discoveries to date, > 800 wells drilled Discovered resource > 7 billion boe Rajasthan development one of the largest oil and gas projects in India Current ~ 180,000 boepd, target potential 240,000 boepd
ViramgamGujarat
Rajasthan
Koyali
Potential Tankers toCoastal Refineries
Jamnagar / Salaya
Kandla
Bhogat
~670km Cairn Pipeline
Pipeline accesses > 75% of India’s refining capacity
Value Creationa world class business focussed on India
Invested >$1 billion of risk capital Invested > $5 billion development capital >40 discoveries, built and installed 12 offshore platforms,
developed 4 major processing terminals, laid >1,000 km pipelines and drilled >800 wells
Appropriate timely deals with Major industry players to share risk and capital and maintain pace of development
Jobs created, social programmes delivered Rajasthan alone provides more than 30% of India’s crude
oil production and is set to generate > $75 billion of revenues for India
Cairn helped improve India’s energy security Ravva
Cairn Energy PLC – a UK / India success story (1996 - 2011)
DSFR fields undeveloped because previously considered too small, too complex or too costly
Tight unconventional oil & gas plays Deep High pressure high temperature plays Enhanced Oil Recovery Deep water New concepts Technology
Unleashing Opportunities – DSFR and elsewhere across IndiaFunding and Technology may unlock value
Why India? Established Hydrocarbon Basins Recent world class discoveries Existing Infrastructure World Oil Prices Improving Gas Price Policies
Why DSFR? Transparent and efficient
Contract award process Simplified administration and
regulation of MRSCs through MOPNG & DGH
Source: Wood Mackenzie
(McKinsey 2014)
India
Factors contributing to the US Energy Revolution India Europe1 Local populations that support energy companies – recognising
jobs and wealth creation 2 Combining horizontal drilling technology (invested in 1980s) and
hydraulic fraccing (invented in the 1950s) with very low permeability oil/gas shales, to produce oil/gas at economic rates
CambayTest
Failures
3 Land owners that benefit from revenues in oil-gas producing areas State 4 Low density of population 5 Large land mass 6 Geology – large areas of rich tight / shale oil and gas ? ?7 Access to high numbers of quality oil drilling rigs, pumping
equipment, oil service companiesMedium
costHighcost
8 Access to capital Yes but...
9 Access to markets for easy sale of oil and gas in low commercial risk environment
10 Small foot print Yes but...
11 Flat lands Built up
12 Good exiting pipelines and energy infrastructure 13 Technical expert eager workforce, well trained + locally sourced Unpopular
14 Low cost of operations 15 Access to water for fraccing Problematic
16 Relatively low intensity of anti-energy company NGO activity NGO Activity
17 US population that has lived with onshore oil & gas production for 100 years and used to benefits, risks and impact both +ve and –ve Unaccustomed
18 Political leaders that encourage oil and gas production –development – both Democrats and Republicans
19 Beneficial fiscal climate stimulating activity Royalty / Tax Mixed
International Competition for Capital – India potentially better positioned than Europe for application of US unconventional technology
India Shale Gas Potential - Best guess is 63 to 96Tcf (EIA)
Recoverable Shale Gas Resources (Tcf) based
on EIA Study (48 Basins in 32 countries)
India like most countries outside of North America has not yet started a shale or tight gas revolution
GAIL has an 8 well
programme underway in
Cambay, targeting shale
Indian Tight Gas / Oil Potential Upside?Geology needs de-risking
CIL has operated successful “Tight Reservoir” pilot wells in Rajasthan - full factory mode production has not yet commenced.
Attempts at “Proof of Concept” wells in Cambay Basin to date have failed to establish commercial flow rates from tight reservoirs.
Operational and technology issues together with funding difficulties for some early adopters mean the potential of Cambay geology is still unproven and the “jury is still out”.
Technical issues remain in India
US Geology FavourableOlder shalesQuartz or carbonate rich
Brittle ShalesMultiple fracture swarmsupon fraccing
FraccingWater based fraccsGels prevalent
Indian Geology Untested Young Tertiary rocksClay rich, few carbonates
Ductile shales?Swelling clays (smectite)Single planar fractures ?
Energised Fracc fluids?
Nitrogen or CO2
Tight Oil & Gas Potential
Magna Quicklook DSFR & India Opportunities Checklist
Magna Core Team has been involved with south Asia and India since 1986
Magna has been formed specifically to invest in Indian E & P opportunities
India is the fastest growing major global economy with ever growing energy demands
1. Is it meaningful/special?
2. Do we have an edge?
3. Is it in our core business area?
4. Does it provide us with what we want?
5. Funding?
6. What is the time scale?
7. Are we sure of the facts?
8. Is it straightforward?
9. Scale of investment?
10. Why the DSFR now?
The DSFR is a rare opportunity to acquire potential production in India
DSFR could be an entrée to cash flow from which to grow
June to October open period allows 5 months for DSFR evaluation
Up to $500 million of PE capital committed to Magna by Carlyle International Energy Partners (CIEP)
DGH DSFR data dockets provide the received wisdom
DSFR applications on-line and awards before year end
Magna is ambitious in seeking multiple investment opportunities in India
Thank You
1985 Just prior to the Second Oil Crisis: - MW leaves Shell International and joins Burmah Oil (Burmah)1986 Burmah collapses during the second oil crisis while celebrating its centennial as Europe's oldest oil company
Indian KG Basin review report salvaged in Burmah collapse Identified the exploration potential on the south bank of the Indus after evaluating a Khankot well drilled
by PPL (67% subsidiary of Burmah) in May Burmah Oil bought by Premier Oil (Premier) mid-1986
1988 At Premier MW negotiates offshore acreage in Myanmar during the onshore bidding round1991 Amsterdam listed Holland Sea Search (HSS – MW MD/CEO) enters Bangladesh 1992 HSS evaluation of Ravva and Gujarat acreage for Command Petroleum (Command), its major shareholder1993/94 HSS farmed-out 60% of Bangladesh to Cairn Energy PLC (Cairn)
SOCO International (SOCO) becomes the major shareholder of Command 1994 Ravva awarded to Command (“Small Fields Round”)1995 Cairn acquired HSS in a recommended Public Offer so acquiring 100% of Bangladesh block
Rajasthan block awarded to Shell 100%1996 Cairn acquired Command (Ravva) and entered India to build a business (until IPO of CIL in 2007 and sale of control
in 2011)Cairn discovered gas at Sangu in Bangladesh, HBR farms-in to Sangu
Appendix IKey Building Blocks
of Value Creation
Appendix IIKey Building Blocks
of Value Creation
1996/7 Cairn / Shell Bangladesh Strategic Alliance – transaction also includes a frontier exploration position in Rajasthan• Transaction creates 50/50 alliance across all upstream and midstream activities in Bangladesh • Shell pays cash to earn a 37.5% stake in Sangu• Shell funds Cairn’s Sangu development costs• Cairn has staged farm-in rights in Rajasthan – initial 10% with option to increase to 40% by carrying Shell
1998 First exploration well in Rajasthan was dry (Shell 90%, Cairn 10%)Rajasthan farmin terms re-negotiated - Cairn stake increases to 50% by drilling a second well (2,000 bopd discovery)Cairn discovery of gas and oil in Gujarat (Lakshmi, Gauri and Ambe)
1998/9 Third Oil Crisis: - India holds NELP I, Cairn awarded deep water block 98/2 (100%)1999 Cairn makes 5 deep water oil & gas discoveries in the KG Basin (deepest water wells in India at the time)2000/1 Gujarat discoveries developed2001 In May Cairn increased its stake in Rajasthan to 100% by acquiring Shell’s 50% interest for $7.25 million
The GoI granted a 3 year extension of the Exploration Term in Rajasthan2002/4 Cairn drilled 120 exploration and appraisal wells in Rajasthan making 27 discoveries 2004/6 Appraisal of the Mangala, Bhagyam and Aishwariya discoveries (MBA fields) confirms the status of the Rajasthan
basin as a major new oil province
2007 Cairn Energy PLC (Cairn) floats Cairn India (CIL) on the National and Bombay stock exchanges
Cairn reduces shareholding from 100% to ~69% in the biggest ever IPO in India at the time $1 billion of capital raised used to finance Rajasthan Development $500 million returned to Cairn shareholders as a special dividend
2009 “First Oil” trucked in Rajasthan
2011 “First Oil” piped in Rajasthan
Cairn sale of 10% CIL to Vedanta Resources (July)
Cairn sale of 30% CIL to Vedanta in December, brings a “change of control” of CIL as Cairn goes below 50% ownership (December)
2012 Cairn retains a ~10% holding in CIL and
Cairn returns an additional $4 billion to shareholders (February)
2014 Just prior to the Fourth Oil Crisis:
Cairn receives a tax demand from the Inland Revenue based on “Retrospective Legislation” (February)
After initiating Senegal entry, Mike Watts & Jann Brown stand down from the Cairn Board (May)
Mike Watts & Jann Brown resign from Cairn as “good-leavers” (October) and launch Magna.
Appendix IIIValue Realisation
Legacy of an Indian Owned Business