Cairn approaches special cell as Barmer plan crawls

Written by Pranav Nambiar | New Delhi | Updated: Aug 12 2013, 12:35pm hrs
Cairn India
Frustrated by the lack of progress in approving its R5,000-crore integrated block development plan (IBDP) at its Barmer block in Rajasthan, Cairn India has now taken up the issue with the special cell in the Cabinet secretariat created to fast-track projects, said sources. The company intends to invest around R13,000 crore overall in the RJ-ON-90/1 block over 2013-16, towards which the IBDP forms a vital component.

The cell formed at the direction of Prime Minister Manmohan Singh is in the nature of a project monitoring group for all large projects, so that these investment projects are commissioned on time. The cell has now sought the oil ministrys response over the issue.

In April, Cairn India had approached the oil ministry for fast-track clearance of the IBDP of its Rajasthan block. To the companys chagrin, the ministry has not taken a final call over the matter as yet. Cairn India CEO P Elango on April 12 had written to the oil ministry seeking approval for an overarching integrated block development plan which seeks blanket investment approvals for the block as opposed to the current practice of government approving capital spending only for discoveries that are commercially viable.

According to Cairn, the IBDP would reduce the lead time between discovery and production from 36 months to 18 months and enhance production of hydrocarbons in India. The block is considered a very promising one as far as potential reserves are concerned. To date, Cairns 26 discoveries in the block put its in-place reserves at around 7.3 billion barrels of oil equivalent.

Sources say the oil ministry has already held a meeting over the issue to take inputs from various operators. The IBDP proposal has been forwarded to the upstream regulator Directorate General of Hydrocarbons and the ministry is awaiting its response. We are in principle in agreement with Cairn to speed up the approval process. However the IBDP might need some modifications, an official said.

Under the cost-recovery model that is currently practised, the government earns profits from an oil and gas field only after the operator has recovered all of its investments. As a result, the government gives approvals only on establishment of a discovery as commercially viable.

Apart from the IBDP, Cairn has also sought the restoration of the 11,108 sq km block that it originally held when the production sharing contract was signed with the government in 1997.

The company currently holds the 3,111 sq km at the Barmer block (RJ-ON-90/1) where it has made 26 discoveries so far.

The oil ministry is, however, of the view that restoring the acreage would be against the PSC. We stopped nominating fields in 1999 and cannot make an exception here, said an official. The PSC states that the exploration period of seven years ended in May 2002. Any acreage that has not been explored or appraised within that timeline has to be returned to the government.

Cairn has also requested the cell for an extension of the PSC of the Rajasthan block which is valid till May 14, 2020. Cairn believes that commercial production of oil from the block is set to go beyond 2040 and, hence, the PSC should be be extended at least till 2030.

That apart, the company wants quick approval of cost recovery of about $1 billion invested by it in exploration and production activities in the development phase, which was earlier disallowed. It is also seeking environmental clearances for boosting production from the block to 300,000 barrels of oil equivalent per day (boepd) from the current 200,000 boepd.

The Mangala, Bhagyam and Aishwarya fields constitute Cairn Indias main assets in Rajasthan. The block was initially held by Royal Dutch Shell in 1995, which Cairn subsequently bought.