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The Herald.co.uk: Shell-shocked Cairn executives head for Bangladesh

 

CHRISTINE FERGUSON March 24 2004

 

CAIRN Energy executives are flying to Bangladesh next week and will conduct emergency talks with Shell after the oil giant revealed it has shut down one of its four large gas wells in the offshore Sangu field.

 

The latest blow for Shell comes after it confirmed yesterday that it faces a possible criminal investigation by the US Justice Department over its shock move in January to cut its oil and gas reserve estimates.

However, the problems in Bangladesh could cost Edinburgh's Cairn Energy more than $1m to fix.

 

Cairn, which has evolved from a small company with roots in the North Sea into one of the UK's leading independents with a primary focus on India and Bangladesh, agreed to buy the oil giant's 37.5% stake in the Bay of Bengal field last year for $50m.

 

However, Cairn which already owns a 37.5% stake in the field insisted yesterday that the shutdown would not have any impact on the sale, which is awaiting approval by the Bangladesh government.

 

Mike Watts, Cairn's exploration director, said: "It is an operational problem and doesn't affect the transaction at all. We expect it to go ahead later this year."

 

He also said it was too early to gauge the scale of the problem, as it had only revealed itself last weekend, and said he expected it to cost, "at the most", $3m to repair. This cost would be split between Shell, Cairn and Halliburton, which between them own the entire field.

 

Watts added: "It is not something we are overly concerned about we have four development wells there, three of which are flowing at a total 170 million cubic feet (mcf) per day, which is up on last year, when all four produced a total of 141mcf per day.

 

"Bill Gammell (Cairn's chief executive) and I are seeing the Shell people next week. We will see whether they can do something before the monsoon, or whether it will have to wait until it is over (in September)."

However, Mohammad Aziz Khan, general manager of Bangladesh's Oil, Gas, and Mineral Corporation, said: "We do not see any quick solution to the problem. The sands and waters are coming out from the well and it is risky to produce gas from the well." Watts said the well problem meant the company had little fallback if one of the other wells in Sangu ran into trouble.

 

Shell's reserves downgrade on January 9 wiped 3.9 billion barrels of oil and gas off its "proved" reserves bookings about 20% of the total, reducing their theoretical producing life to about 11 years from more than 13.

 

Last week, Shell shook investor sentiment a second time by announcing a further albeit much smaller reserves downgrade.

 

Shares in Shell closed last night down 1.75p, or 0.5%, at 352p, while Cairn shed 15p to 885p.

 

Copyright 2004 Newsquest (Herald & Times) Limited. All Rights Reserved    

 

http://www.theherald.co.uk/business/12609.html


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