Cairn seeks 10-year PSC extension, DGH says 5

Written by Siddhartha P Saikia | New Delhi | Updated: May 21 2014, 05:29am hrs
CarinCites gas vs oil block rules; Cairn: need more time for full extraction
In a blow to Vedanta Group company Cairn India, the Directorate General of Hydrocarbons (DGH) has turned down its request for a 10-year extension of the production-sharing contract (PSC) for its prolific Barmer block, the biggest onshore oil asset in the country right now.

The PSC is set to expire on May 14, 2020, and the DGH said not more than a five-year extension from that date could be given.

The private explorer that reported an operational expenditure of $3.90/barrel in FY14 for the Barmer asset targets to spend $2.4 billion over the next three years and believes that the entire oil cannot be taken out before 2030. Cairn has projected Barmer production to grow at 7-10% (CAGR) for the three years starting FY16.

Effectively, the DGHs move is favourable to ONGC as an early termination of the contract with the Anil Agarwal-promoted firm indicates a producing asset would eventually be handed over to the PSU. A final decision, however, has to be taken by the ministry, sources said.

The DGH has said that Barmer is primarily oil-producing and hence the contract can be extended only for five years. In case it was a gas field, the PSC could have been extended by another 10 years, a senior petroleum ministry official told FE.

A Cairn India spokesperson said: The PSC for the Rajasthan block provides for extension and our request is currently being examined by the government. We are confident that a positive decision will be taken by the government at the earliest in the interest of maximising production. He added, The Rajasthan block has significant hydrocarbon reserve. PSC extension and Cairn Indias committed investment will enable significantly higher level of production of crude oil and natural gas for the benefit of all stakeholders and the nation at large.

Significantly, the regulators view is despite the fact that the Barmer block also has gas-producing potential. The peak gas output may be around 15 mmscmd (million metric standard cubic metres per day), which is yet to be approved by the management committee, said the ministry official.

The Rajasthan block was awarded before the New Exploration Licensing Policy (NELP) regime came into force. In the case of acreages auctioned under NELP, the contractor can continue to operate until output ceases, as there are no specific term for their validity.

The Mangala field in Barmer, Rajasthan, discovered in January 2004, is the largest onshore oil discovery in India in more than two decades. The Mangala, Bhagyam and Aishwariya fields major discoveries in Rajasthan have gross ultimate oil recovery of over 1 billion barrels from primary, secondary and enhanced oil recovery (EOR) methods.

Cairn India is the operator with 70% participating interest. Its joint venture partner, ONGC, has the remaining 30% participating interest.

At present, five oil fields Mangala, Bhagyam, Aishwariya, Raageshwari and Saraswati produce about 200,000 barrels of oil per day. Also in March 2013, Cairn India commenced commercial sale of gas. In FY14, Cairn India gross contribution to the exchequer stood at Rs 24,299 crore and accounted for about 30% of domestic crude oil production.