A block oversight committee, headed by the Directorate General of Hydrocarbons (DGH), on February 14 allowed the company to drill its first exploration well on Rajasthan block in more than five years, sources said.
Cairn, which started production from Mangala oilfield -- the biggest of the 25 oil and gas finds in the Barmer dessert block in Rajasthan -- in August-end 2009, is produces around 170,000 barrels a day from the block.
It has plans to end the 2013-14 financial year with 200,000 to 215,000 bpd output and further exploration in the block is key to adding more reserves.
The proposal to allow exploration in a producing field was pending with the Oil Ministry for more than one and a half years. Only last month the ministry allowed firms like Cairn to drill probe wells within an oil and gas field, but with the condition that cost recovery of such wells would be allowed only in case there is a commercially exploitable discovery.
Sources said the so-called Management Committee had previously asked Cairn to detail its exploration campaign in form a work programme with requisite approval of a panel comprising of its partner Oil and Natural Gas Corp (ONGC).
The MC on February 14 approved that work programme and Cairn will now drill the first exploration well on Rajasthan block by this month.
In all, Cairn plans to drill 30 exploration wells by March 2014, of which three would be in current year itself, sources said.
Cairn believes the Rajasthan block holds an in place resource base of 7.3 billion barrels that can support 300,000 bpd of output. This potential can be realised only if it undertake further exploration to locate the oil zones.
Sources said the Rajasthan JV comprising of Cairn and ONGC, has identified numerous prospects that will support, intensify the exploration efforts and enhance drilling activities.
The prospects could include both oil and gas. The rationale behind exploration of gas prospects was to augment the already-rich gas find in the Southern part of the block and explore possibilities of commercialisation beyond captive usage, they said.
Sources said at 175,000 bpd production, Cairn's contribution to the government is more than Rs 12,000 crore annually in duties and taxes.
Cairn has till date invested over USD 4 billion in the Rajasthan development.
At present, it operates close to 25 per cent of the countrys domestic oil production.
Sources said the condition that cost recovery will be allowed only in case of successful discovery means that cost of drilling any well that does not lead to a discovery, or a small find that could not be independently produced, will not be allowed.
Currently, when a company finds oil or gas in an area, the discovery area is ring-fenced and a mining lease is granted for production of hydrocarbons.
Operators get to recover all their cost -- whether successful or failed wells, from the oil and gas produced and sold from that particular block.