In a major setback to Cairn India, upstream regulator Directorate General of Hydrocarbons (DGH) has opined that the company-operated Ravva oil and gas fields in the
Krishna-Godavari Basin are eligible only for five years’ extension and not 10 years after the contract expiry in 2019-20.
The Ravva production-sharing contract (PSC) was signed on October 28, 1994, where Cairn India is the operator with a 22.5% stake. Other partners in the consortium include Videocon Industries (25%), Ravva Oil (12.5%) and ONGC (40%).
On June 27, 2014, Cairn as operator sought an extension of the PSC for 10 years.
Currently, crude oil production from the Ravva asset hovers around 26,000 barrels per day and gas output is nearly one million metric standard cubic metres per day.
The present price of gas from Ravva field is $3.50 per million British thermal units and that from the Ravva satellite field is $4.30 per mmBtu. Revision of the prices is due, which is currently being negotiated between GAIL and the consortium.
“The DGH has examined the production profile of oil and gas as submitted by the operator for the field life. The oil production profile extends up to 2024-25, whereas gas profile extends only up to 2019-20, which is the terminal year of the contract,” a government official told FE.
According to article 2.1 of the PSC, a crude oil producing fields is eligible for five years’ extension . The extension for gas field, however, can be up to 10 years depending on the remaining life of the asset which, in this case, is only over five years. The article says, “The duration of this Contract shall be for a period of twenty five years from the effective date, unless the Contract is terminated earlier in accordance with its terms, but may be extended by the government for a further period not exceeding five years; provided that in the event of commercial production of non-associated natural gas, the Contract may be extended for a period up to but not exceeding thirty five years from the effective date.”
Cairn India declined to comment on the extension for the Ravva project citing its silent period, as it is scheduled to announce its third quarter result on January 22.
However, the silver lining is that the ministry of petroleum and natural gas is working to bring out a policy for extension of small and medium-sized fields till the economic life of the asset. The rider would be that explorers would have to share a higher percentage of revenue with the government.
“Ravva was offered as a medium-sized field in 1994 and is covered under the ‘extension policy’, which is under finalisation by the ministry,” the official quoted above said.
The Ravva oil and gas field in the Krishna- Godavari Basin was developed in partnership with Cairn India, ONGC, Videocon and Ravva Oil under a PSC that runs until 2019.
Vedanta Group company Cairn India is facing a similar scenario for its prolific Barmer block in Rajasthan. DGH is of the view that Barmer is primarily oil-producing and, hence, the contract can be extended only for five years. In case substantial gas production is established in the block, the PSC could have been extended by another 10 years. The PSC for the Barmer block is set to expire on May 14, 2020. Cairn India submitted its application for contract extension to the petroleum ministry on April 5, 2013.