Says PSC doesn’t provide for sales abroad
The petroleum ministry has shot down a proposal from Cairn India to export crude oil from Barmer block in Rajasthan, saying its production sharing contract (PSC) with the Centre doesn’t provide for sales abroad. The ministry’s decision comes despite the fact that exports could fetch the company $12 per barrel more than domestic sales, which incidentally are at a discount to market prices due to a 2009 government directive.
Cairn has pitched for permission to export crude from India’s largest onshore field, arguing that exports could also lead to substantial additional revenue for the state and central governments in terms of royalty, taxes and profit petroleum.
According to sources, the ministry, after examining Cairn’s proposal — first placed before then petroleum minister M Veerappa Moily during UPA rule — has rejected it even though Cairn mooted a swap mechanism, that it could source cheaper crude from overseas for PSU refineries in exchange of the permit to export Barmer crude. “The PSC doesn’t allow export of crude oil. Moreover, India imports huge volumes of crude oil, and in such a scenario export of the commodity cannot be permitted,” a senior government official told FE.
Cairn had taken up the matter with oil minister Dharmendra Pradhan immediately after he took charge.
The private explorer, desperately making efforts to hike its revenues from Barmer, is also pleading to review the existing pricing formula of crude oil from its Rajasthan block, which is sold at 10-15% discount to Brent. The average crude price realisation from the block for FY15 was $76.4 per barrel, as it sold at a 10.6% discount to Dated Brent.
Cairn India’s profit after tax in FY15 dropped by 64% to Rs 4,480 crore against Rs 12,432 crore in the previous year.
Cairn has presented exports as a win-win situation, since the PSU oil refineries that get Barmer crude at a discount do not have the refineries that enable them to extract more derivatives from the waxy crude — both Reliance Industries (RIL) and Essar Oil, which get 80% of Cairn’s production at discounted price, however, have new refineries that can process waxy crude.
Cairn has got offers from various global refineries to buy the crude at around $12 per barrel more than what it gets from domestic sales at the moment.
In Rajasthan, fourth quarter of FY15 production was lower at 174,206 barrels of oil equivalent per day (boepd) due to higher than expected water cut at Bhagyam field.
Most Indian refineries are designed to process cheaper, high-sulfur crude, while that produced from the Rajasthan fields has low sulfur content. Currently, the government decides buyers for Cairn India’s crude from Rajasthan fields.
Besides Indian Oil, the biggest government-controlled refiner, the crude is also sold to two non-state refiners — Reliance Industries and Essar Oil.
According to Cairn India, the export proposal (assuming that the entire production is exported) would fetch the government around Rs 2,800 crore extra per year at 200,000 barrels per day (bpd) and Rs 5,289 crore at 300,000 bpd. This does not include the dividends earned by its PSU partner ONGC, which holds a 30% stake in the company.