FE Editorial : Cairn gets going
The Financial Express: Feb 19 2013, 01:07 IST
You’d think a country as oil-starved as India, where more than 80% of needs are met through imports, would be keen to encourage firms to spend more time and money on exploration, but not quite. The current production-sharing contract that governs how the oil/gas blocks are to be run, for instance, allows a firm to explore for oil in only the first 7 years, the next 13 are to be used only for developing the wells. It is obviously important for the government to be able to get oil/gas, but which company would go on exploring for more oil instead of producing it if the prospects didn’t look good? It was for this reason that, nearly 7 years ago, Cairn wrote to the oil ministry asking for permission to do more exploration—its 7-year window had expired for the Rajasthan block—but the ministry refused, never mind Cairn’s argument that continuous exploration is something allowed in most countries since, it is only as operators get more data from the fields that they can take decisions on whether to explore more or not. Ostensibly, the reason for why the government did not allow continuous exploration was that, in the case of Cairn’s $1 billion exploration programme, the government stood to lose $500 million—at the peak, Cairn’s profit-sharing was 50%—if the company didn’t find anything. But surely that was a risk worth taking given the data Cairn was showing it on how much oil there was to be explored? And surely a country that
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