P1475 Relinquishment Report

March 2014

A merrow was a type of mermaid in Celtic folklore. Merrow was the main prospect identified on P1475 and follows Nautical Petroleum’s convention of naming prospects and discoveries after mythical sea creatures

Contents 1. Licence Information...............................................................................................3 2. Licence Synopsis ...................................................................................................4 3. Work Programme Summary ..................................................................................6

3.1. Firm Commitments .........................................................................................6 3.2. Drill or Drop Commitment .............................................................................7

4. Database.................................................................................................................9 5. Prospectivity Update............................................................................................10 6. Further Technical Work Undertaken ...................................................................16 7. Resource and Risk Summary ...............................................................................18 8. Conclusions..........................................................................................................19

Figures Figure 1 P1475 location map .........................................................................................5 Figure 2 Comparison of original and reprocessed offshore 2D seismic line.................7 Figure 3 Comparison of original and reprocessed transition zone 2D seismic line.......8 Figure 4 Seismic and well database constructed for P1475...........................................9 Figure 5 East Irish Sea stratigraphy.............................................................................10 Figure 6 Top Sherwood Sandstone map from licence application document .............11 Figure 7 Original and revised top Sherwood Sandstone Group pick...........................12 Figure 8 Final top Sherwood Sandstone depth map ....................................................13 Figure 9 Merrow Collyhurst Sandstone Formation depth map ...................................14 Figure 10 Composite seismic line across the Merrow Collyhurst prospect...............165 Figure 11 Bathymetry over P1475 and surrounding area. .........................................166 Tables Table 1 Seismic data purchased and reprocessed during initial term ............................6 Table 2 Prospect resource and risk summary ..............................................................18

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1. Licence Information Licence Number P1475 Licence Round 24th Licence Type Four year drill or drop Block Numbers 113/29c, 113/30 Licensed Area

Block 113/29 is bounded by straight lines joining the following co-ordinates: (1) 54o 02' 30.850”N 3o 12' 00.000”W (2) 54o 00' 00.000”N 3o 12' 00.000”W (3) 54o 00' 00.000”N 3o 20' 00.000”W (4) 54o 05' 00.00O”N 3o 20' 00.000”W (5) 54o 05' 00.000”N 3o 23' 00.000"W (6) 54o 08' 00.00O”N 3o 23' 00.000”W (7) 54o 08' 00.000”N 3o 24' 00.000”W (8) 54o 10' 00.000”N 3o 24' 00.000”W (9) 54o 10' 00.000”N 3o 19' 35.285”W thence by a line following the “Duddon Sands” Bay Closing Line as detailed in document “The Petroleum (Production) (Seaward Areas) Regulations 1988 (No 1213 of 1988)” until coordinate: (10) 54o 06' 18.339"N 3o 16' 23.748'W thence by a line following the “MLW” as detailed in document “Digital Coastline Ordnance Survey 1/1/2005” until co-ordinate: (11) 54o 02' 30.850"N 3o 12' 00.000"W Block 113/30 is bounded by straight lines joining the following co-ordinates: (1) 54o 02' 30.850”N 3o 12' 00.000”W thence by a line following the “MLW” as detailed in document “Digital Coastline Ordnance Survey 1/1/2005” until co-ordinate: (2) 54o 02' 31.265”N 3o 11’ 35.614”W thence by a line following the "Morecambe Bay" Bay Closing Line as detailed in document “The Petroleum (Production) (Seaward Areas) Regulations 1988 (No 1213 of 1988)” until coordinate: (3) 54o 00' 00.000”N 3o 08' 32.983”W (4) 54o 00' 00.000”N 3o 12' 00.000”W (5) 54o 02' 30.850”N 3o 12' 00.000”W These co-ordinates were specified using "European Datum 1950".

Operator Nautical Petroleum PLC Partner Encore Petroleum Limited Licence Award 1 April 2007 Licence Relinquishment 31 December 2013 Nautical Petroleum PLC was acquired by Cairn Energy PLC during the term of the licence. Encore Petroleum Limited was acquired by Premier Oil PLC during the term of the licence. This report has been prepared by Cairn Energy PLC which confirms that it is free to publish all the information in the report.

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2. Licence Synopsis P1475 was a four year drill or drop licence in the East Irish Sea Basin awarded to Nautical Petroleum PLC and Encore Petroleum Limited in the United Kingdom 24th Seaward Licensing Round in April 2007. During the initial term of the licence, Cairn Energy PLC acquired Nautical Petroleum PLC and its interest in P1475 and Premier Oil PLC acquired Encore Petroleum Limited and its interest. The work programme consisted of purchase and reprocessing of existing 2D seismic data designed to mature the Merrow prospect recognised at the time of the licence application to drillable status. At the time of licence application, Merrow was mapped as a dual objective, vertically stacked Triassic Sherwood Sandstone and Permian Collyhurst Sandstone structural closure of significant resource potential size. During the initial term of the licence the work programme was significantly exceeded and Merrow and the surrounding acreage were thoroughly evaluated. Reprocessing and reinterpretation of 2D seismic datasets from the 1980s and 1990s showed that the Merrow Triassic Sherwood Sandstone prospect was much smaller than conceived at the time of the licence application and of sub commercial resource size. However, the Merrow Lower Permian Collyhurst Sandstone prospect still had a potentially commercial volumetric and risk profile. The Merrow Collyhurst Sandstone prospect straddled the coastal zone from Walney Island to the immediately adjacent offshore area. Drilling of Merrow from an offshore location using a jack-up mobile drilling unit was not feasible partly due to exclusion zones around pipelines and windfarms but primarily because of the shallow mean water depth and large tidal range over the prospect. There was only sufficient water depth to move a jack-up onto location at spring high tide and even then there would have been insufficient draft to operate the rig pumps for several hours either side of low tide. Consequently in 2010 an onshore-to-offshore well to test the Merrow Collyhurst was planned and included in that year’s firm budget. Planning permission was granted and agreement reached with a landowner for a drill site. However the well could only be drilled from an existing PEDL and the Walney Island drill site was unlicensed so well planning was halted pending an application for the Walney Island acreage in the anticipated 14th Onshore Licensing Round. In view of the unavoidable delay, the initial four year drill or drop term of P1475 was extended by DECC by deed of variation in 2011 initially by one year to 31 March 2012 on condition that an onshore-to-offshore well would be drilled to test Merrow after the 14th Onshore Round. As the 14th Onshore Licensing Round had still not been announced, further extensions were subsequently granted by DECC to 31 March 2014. Unfortunately with this deadline approaching, the 14th Onshore Licensing Round had still not been announced and planning permission for the onshore well was due to expire in September 2014. In December 2013 after discussions between Cairn (on behalf of the co-venturers) and DECC it was agreed that P1475 would be relinquished.

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Figure 1 P1475 location map

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3. Work Programme Summary

3.1. Firm Commitments Obtain 230km of 2D seismic data Reprocess 300km of 2D seismic data The firm commitments were met. In the initial term 765km of offshore and transition zone seismic data were obtained and reprocessed. A further 475km of offshore 2D seismic data were obtained and used with the original processing. Also a 3D seismic survey over the Lennox oilfield was obtained in order to compare the structural style and amplitude response in that field with that seen in the Sea Serpent lead in P1475.

Dataset Type Vintage Reprocessed by Hex-85 2D offshore 1985 Spectrum Geo Ltd AUK-90 2D offshore 1990 Spectrum Geo Ltd AUK-92 2D offshore 1992 Spectrum Geo Ltd & Count

Geophysics U038 2D onshore 1987 Collins Geofisical [sic] &

Spectrum Geo Ltd Cly-89 2D offshore 1989 - BHP96-110 3D offshore 1996 -

Table 1 Seismic data purchased and reprocessed during initial term The 2D and 3D data were interpreted in time at seven geologic horizons from Upper Triassic to top Carboniferous. In addition relevant onshore and offshore wells were purchased, correlated at the same seven geologic horizons and tied to the seismic data. The structural interpretation was depth converted at the prospective top Lower Triassic Sherwood Sandstone Group and top Lower Permian Collyhurst Sandstone Formation horizons. It became clear on the reprocessed datasets that the Triassic Sherwood Sandstone level structure of the Merrow prospect was much smaller than had been envisaged at the time of licence application. The Lower Permian Collyhurst Sandstone Formation structure was essentially the same on the reprocessed and original dataset interpretations. The reprocessed datasets were of sufficiently high quality that the top reservoir horizons could be confidently picked. The main interpretation uncertainty was caused by lack of data in transition zone areas between the offshore and onshore lines which meant it was unclear whether some leads closed in the landward direction (e.g. Sea Serpent). Additionally, gravity and high resolution magnetic datasets were purchased and modelled. The magnetic dataset was particularly useful for identifying the exact position of the Tertiary aged Fleetwood Dyke basic igneous intrusives which crossed the licence area. Other studies undertaken included salt velocity modelling to improve imaging in areas affected by Upper Triassic Mercia Mudstone Group salt swells and AVO feasibility studies. The latter study concluded that while some amplitude anomalies at Upper Triassic Ormskirk Sandstone Formation level were consistent with a gas filled sandstone response, the data quality and cable length in the 2D seismic datasets were insufficient for a quantitative analysis.

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3.2. Drill or Drop Commitment Drill one well to the Carboniferous (c. 2100m) or determine the licence The initial term was extended until 31 March 2014. The licence was relinquished at the end of the initial term.

Figure 2 Comparison of original and reprocessed offshore 2D seismic line

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Figure 3 Comparison of original and reprocessed transition zone 2D seismic line

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4. Database 765km of 2D offshore and transition zone seismic data were obtained and reprocessed. A further 475km of 2D seismic data were obtained and interpreted using the original processing. In addition a 3D seismic survey over the Lennox oilfield was obtained and interpreted and a complete suite of well data was purchased and correlated.

Figure 4 Seismic and well database constructed for P1475

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5. Prospectivity Update In the application for licence P1475 the only prospect identified was Merrow. This was interpreted as a broad roll over anticline into the basin bounding fault system that forms the Walney Island coastline. The primary target was the Triassic Sherwood Sandstone Group which forms the reservoir for all oil and gas accumulations in the East Irish Sea basin. P50 GIIP estimate was 126bcf of gas (although it was recognised based on offset fields that up to 30% of this could be non-hydrocarbon inerts). An oil case was also carried. Additionally a separate stacked closure at Lower Permian Collyhurst Sandstone formed a secondary target with 426bcf of gross P50 GIIP potential. Figure 5 East Irish Sea stratigraphy

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Figure 6 Top Sherwood Sandstone Group structure map of Merrow prospect from licence application document After reprocessing and interpretation of the seismic data obtained in the work programme it was realised that the Top Sherwood Sandstone pick was structurally shallower on the hangingwall side of a fault in the northern part of the structure than had been realised at the time of the application. This severely reduced the size of the Sherwood Sandstone Group closure of the Merrow prospect leaving a sub-commercial 6bcf GIIP potential. The reduced closure conformed to the extent of an amplitude anomaly consistent with the presence of gas at Top Sherwood Sandstone Group which had been recognised previously.

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Figure 7 Original top Sherwood Sandstone Group pick (top) and revised interpretation in the light of the reprocessed seismic data (bottom). The shallower pick in the northwest lifts the spillpoint severely reducing the size of the Merrow Triassic prospect. The Collyhurst Sandstone pick was unchanged and the Merrow Collyhurst prospect is visible in the lower centre of the line

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Figure 8 Final top Sherwood Sandstone depth map. The Merrow Triassic prospect was severely reduced in size to c. 6bcf GIIP as a result of the shallower pick in the north of the licence. A small four way dip closure known as Lophius is present in the south of the licence. The Sea Serpent lead lies to the east of the licence and does not appear to have any closure in a northerly direction. Depths in metres, contour interval 10m The Collyhurst Sandstone Formation closure was essentially unchanged on the reprocessed data interpretation. Final recoverable resource estimates and risks are included in Section 7. The dominant risk with the Merrow Collyhurst Sandstone prospect is the clear juxtaposition of reservoir sandstones with Lower Triassic St Bees Sandstones across the crestal faults of the structure in the Walney Island fault zone. Additionally reservoir quality in the basal Permian section is variably developed and of generally low porosity in this area due to palaeogeographical proximity to the early Palaeozoic Borrowdale Volcanics of the Lake District high.

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Figure 9 Merrow Collyhurst Sandstone Formation depth map. Contour interval 25m

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Figure 10 Composite of seismic lines AUK90AD-025 (left) and onshore line U038-87-02 across the crest of the Merrow Collyhurst prospect. The onshore-to-offshore planned well trajectory is shown. The Upper Permian St Bees Evaporites top seal to the Collyhurst Sandstone Formation is too thin to be resolved seismically and the line shows the juxtaposition of the Collyhurst Sandstone Formation with the Lower Triassic St Bees Sandstone across the crestal faults. The prospect also relies on seal against Carboniferous or Borrowdale Volcanics in the footwall at its updip end The only other lead recognised during the work programme was called Sea Serpent. Sea Serpent is a roll over anticline at top Sherwood Sandstone Group level into the basin bounding Haverigg Fault which in an east-west orientation has geometric similarities to the Lennox oilfield in the south of the basin (which itself is a roll over into the basin bounding Formby Point Fault). The crest of the Sea Serpent roll over lay in open acreage to the east of the eastern boundary of P1475. An absence of seismic data in the coastal zone means that it is not possible to demonstrate structural closure of Sea Serpent in a landward direction.

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6. Further Technical Work Undertaken Technical work undertaken was as described in Sections 3 and 5. This interpretation demonstrated a large, rather low chance of geologic success prospect exists at Lower Permian Collyhurst Sandstone level in the Merrow prospect. However the issue with testing the Merrow prospect was not so much geological prospectivity as engineering feasibility. Extensive well planning studies in the period 2008-2013 demonstrated that it was impractical to drill the Merrow prospect offshore because water depth at low tide was insufficient to locate a conventional jack-up drilling unit which would have required approximately 10m bathymetry.

Figure 11 Bathymetry over P1475 and surrounding area. The outlines of the Merrow Collyhurst Sandstone prospect (red) and Lophius prospect (purple) are shown. Spot depths and contours are in metres below lowest astronomical tide. Approximately 10m of water depth is required to locate and operate a jack-up drilling unit. Tidal soundings at the Half Way Shoal in the southeast of P1475 show that LAT is 1.1m below mean spring low water, 2.9m below mean spring neap water, 9m below mean spring high water, 6.9m below mean neap high water and therefore about 5m below mean sea level. The chart also shows the gas pipelines, wind farms and electrical cables whose exclusion zones further hampered locating a drilling unit in P1475. Adapted from Admiralty Chart 1826, Irish Sea – Eastern Part, edition 5, Feb. 2013

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Well planning effort therefore focussed on drilling a deviated onshore-to-offshore well to test the crestal part of the Merrow Collyhurst Sandstone structure, adjacent to the Walney Island coast. From a prospect evaluation point of view this would not have been ideal. The well could only reach the crestal part of the structure and would have passed out of the base of the reservoir approximately 150m above the lowest closing contour thereby proving a very small GIIP in the success case which would still have required offshore appraisal at some point in the future. However, it was feasible from an engineering perspective and considerable effort was spent by Cairn’s in-house well engineering department and third party drilling consultancies Francis Mahon and First Drill to plan and cost this exploration well. However, without an onshore PEDL the well could not be permitted. The initial term of the licence was extended three times by DECC to 31 March 2014 but by this time the 14th Onshore Licensing Round (which was required for an application for a PEDL over the onshore drill site) had still not been announced and planning permission for the drill site was due to expire. Consequently the licence was relinquished at the end of the initial term.

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7. Resource and Risk Summary Recoverable resource and risk summaries are tabulated for the Merrow prospect. Gas reserves are gross figures. Offset fields indicate that up to 30% of the gross gas reserve could be non-hydrocarbon (principally nitrogen). As no closure case can be demonstrated for the Sea Serpent lead, no volumetric calculation is provided.

Gross reserves (including inerts), bcf

Name Type Stratigraphic level

P90 P50 P10

Geologic chance of success

Risked P50 bcf

Merrow Sherwood Sandstone

Prospect Lower Triassic

2.6 3.6 5.0 22% 0.8

Merrow Collyhurst Sandstone

Prospect Lower Permian

202 335 486 6% 20.1

Lophius Prospect Lower Triassic

0.1 0.8 2.6 22% 0.2

Table 2 Prospect resource and risk summary

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8. Conclusions The work completed during the initial term has demonstrated the presence of a large, relatively high risk Lower Permian reservoired prospect called Merrow. This prospect could be explored by drilling of a deviated onshore-to-offshore well if the onshore area were to be licensed. The work programme has shown that prospectivity in the primary reservoir of the East Irish Sea Basin, the Lower Triassic aged Sherwood Sandstone Group is limited within the area of P1475 to two small four way dip closures called the Merrow Triassic prospect and Lophius. Reserves potential for both is small and due to their shallow reservoir depth they could not be reached by an onshore-to-offshore well. Locating a mobile drilling unit in P1475 is hampered by the shallow water depth and high tidal range over the licence. The partners have therefore reached agreement with DECC to relinquish licence P1475 in its entirety and the partners confirm that DECC is free to publish the information in this relinquishment report.

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