Cairn India, part of the $11-billion Vedanta Group, has asked the petroleum ministry to allow it to export its crude instead of selling it at a $12-per-barrel discount. According to the $3-billion Cairn India, this will fetch the government around R2,800 crore extra per year and can even go up to R5,289 crore in a full year — this does not include the dividends earned by its PSU partner ONGC which holds a 30% stake in the company.
Cairn has proposed it sell its crude at the international price and PSU refineries like Indian Oil be given the cheaper crude they import at the moment as a substitute. Cairn first made the proposal a year ago and is now making it again to new oil minister Dharmendra Pradhan.
Cairn has presented the proposition as a win-win situation since the PSU oil refineries that get the discount do not have the refineries that enable them to extract more derivatives from its waxy crude — both Reliance Industries and Essar Oil, which get 80% of Cairn’s production at the PSU price, however, have new refineries that can get more produce. Cairn has got offers from various global refineries to buy the crude at around $12 per barrel more than what it gets at the moment.
The petroleum ministry is also to decide on extending Cairn’s Rajasthan lease which expires in 2020 and, if so, on what terms. According to Cairn, which shares around 80% of its profits with the government (Centre, Rajasthan and ONGC), the Rajasthan field, given up by Shell as not being viable in 2002, has enough oil/gas to be able to produce till 2040.
Under the production-sharing contract, if the field is an oil-producing one, a five-year extension can be granted and a 10-year extension for a a gas one. Cairn is looking for an extension even beyond this at the same terms it has today.
Cairn began production at the Rajasthan field in 2009 — it took over Shell’s field in 2002 and discovered Mangala in 2004 — and is already India’s second-largest producer at 10 million tonnes compared with ONGC’s 22.5 million tonnes.
According to Cairn, its current production of 2 lakh barrels per day can go up to 3 lakh barrels within three years if it finds the kind of oil its 2/3D surveys show. While Cairn had estimated there were 4.2 billion barrels of oil in place, 1.2 billion of which can be recovered — it has recovered 240 million so far — after the latest round of surveys, Cairn is reasonably certain there is another 3 billion barrels of oil in the fields; this will take the oil in place to 7 billion barrels. In addition, there is a possibility this could go up another 3 billion barrels. Cairn will have done its drilling in another six months and will have firm results after that.
Cairn has spent $4.5 billion in developing the Rajasthan fields and according to the capex plan it has submitted, it will spend another $3 billion in the next three years, $2.4 billion of which will be in the Rajasthan field.
Siddhartha P Saikia | The Financial Express