ONGC?s royalty burden would increase sharply as Cairn India ramps up production from its Rajasthan block. As per the production sharing contract (PSC) signed by the petroleum ministry for the Barmer block, ONGC is required to pay royalty on entire production from the Barmer fields even though it has just 30% participating interest in the block.
?Currently, production from the block is low. But as production goes up, ONGC?s royalty liabilities will rise sharply. It will be sufficiently high when the block reaches peak production in 2011,? ONGC sources told FE. The applicable royalty rate for the block is 20%. As per an internal estimate by ONGC, the company could end up paying as much as Rs 12,000 crore in excess royalty over the production life of the block.
Cairn started production from the pre-Nelp block last August. It is currently producing 20,000 barrels per day (bpd) of crude oil from the field and expects to raise production to 70,000 bpd soon. The block is expected to produce 1,75,000 bpd crude oil at its peak level, which will be 20% of India?s domestic crude production.
Cairn made the discovery in January 2004. The three fields of the block?Mangla, Bhagyam and Aishwariya?have recoverable reserves of 700 million barrels of oil with further 300 million of enhanced oil recovery potential.