Up to government now to decide on tenure, fiscal terms of extra PSC years
In what has brightened the prospect of Vedanta Group company Cairn India retaining the prolific Barmer oil assets beyond 2020 when its current contract expires, the board of state-run PSU explorer ONGC on Wednesday decided not to object to such an extension.
ONGC is Cairn’s partner in the block, India’s biggest onshore oil asset. It was speculated that the state-run firm was hoping to up its stake in the Barmer block from the current 30% after the expiry of the production-sharing contract (PSC) on May 14, 2020.
The Directorate General of Hydrocarbons (DGH) had earlier pitched for a five-year extension of the Barmer PSC, a move seen as favourable to ONGC as it meant that the producing asset would be handed over to ONGC before its exhaustion. Cairn, with plans to spend $2.4 billion in the block over the next three years, had asked for a 10-year extension of the PSC.
“The issue was deliberated at the last (ONGC) board meeting (on Wednesday), which approved the NOC (no-objection certificate) for extension of the Barmer block,” a source familiar with the matter told FE.
With ONGC having made its stand clear, it is up to the government to decide on the tenure of the extension and other fiscal terms for the Barmer block.
However, another official added that although the issue was deliberated at the PSU’s board meeting, there were still a few “open-ended points” that would be finalised in the next three to four days. The issue is “complicated” and clarity would emerge only by next week, he added.
ONGC chairman and managing director Dinesh K Sarraf was not immediately available for comment.
Cairn India is the operator with 70% participating interest. Its joint venture partner, ONGC, has the remaining 30% participating interest. Cairn India had submitted its application for contract extension to the petroleum ministry on April 5, 2013.
“It is for the government to decide on the fiscal terms for the block. There is a possibility of the government increasing its share of revenue from the asset,” the first official said.
According to a policy being finalised by the petroleum ministry, the government’s share of revenue post extension of PSC for small and medium-sized fields will be 5% higher than those specified in existing PSCs and will not be less than 50% for small fields and 60% for mid-sized ones.
However, the Barmer block is not included in this policy. In addition to increasing levies, industry watchers also see the possibility of the government asking ONGC to increase its stake in the Rajasthan asset from 30% now.
At present, five oilfields in the Barmer block — Mangala, Bhagyam, Aishwariya, Raageshwari and Saraswati — produce about 180,000 barrels of oil per day. In March 2013, Cairn India commenced commercial sale of gas as well. In FY14, Cairn India’s gross contribution to the exchequer stood at R24,299 crore and accounted for about 30% of domestic crude oil production.
The private explorer reported an operational expenditure of $3.90 per barrel in FY14 in the Barmer asset. It 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.