Private explorer Cairn India and its state-run partner ONGC will get a 10-year extension for the Barmer oil and gas block in Rajasthan beyond 2020, when the current production-sharing contract (PSC) ends.
Private explorer Cairn India and its state-run partner ONGC will get a 10-year extension for the Barmer oil and gas block in Rajasthan beyond 2020, when the current production-sharing contract (PSC) ends. The Barmer block is the biggest onshore oil producing project in India and its current output hovers around 166,943 barrels of oil equivalent per day.
On July 28, the Delhi High Court asked the Centre to decide “within five weeks” whether it will extend the PSC for the block — RJ-ON-90/1, spread over 3,111 sq km west of Barmer. Cairn India had moved the court seeking extension of the PSC and permit to export crude oil from the block.
Cairn India said in its latest presentation that the Rajasthan PSC extension till 2030 could mean conversion of an estimated 250 million barrels of oil equivalent (mboe) into reserves. While the extra investments required to tap these reserves could not be ascertained, gross capital expenditure of more than $800 million is required for Raageshwari Deep Gas and Bhagyam polymer flood, which are part of the asset.
FE has learnt that the decision to extend the PSC by 10 years has been taken after the issue was “deliberated in detail” at a recent meeting chaired by petroleum minister Dharmendra Pradhan. The government, however, is yet to officially communicate the decision to Cairn India.
The extension comes with a caveat that the explorer would have to share 10% additional “profit petroleum” during the extended duration. Profit petroleum is the main source of revenue for the government from a hydrocarbon block. It is calculated using what is called an investment multiple that denotes how many times the earnings are to the investment.
Sources privy to the development told FE that the government has arrived at the decision after “carefully examining several surveys that shows that increasing Centre’s share of revenue from the prolific block would not impact the economical viability of the project”.
The government, however, was keen that the rise won’t be steep to hamper “the ease of doing business”, the source said.
Cairn India declined to comment for this story citing that the matter is sub judice. The Vedanta Group company has forked out Rs 2,364 crore towards profit petroleum in FY16 on a consolidated basis. A chunk of it would be towards hydrocarbon output from Barmer block. The consolidated profit petroleum shared in FY15 stood at a little over Rs 4,734 crore.
One of the sources also added that the decision is in line with the Cabinet decision of March 10 where a policy has been put in place on grant of extension to the PSC for 28 small and medium-sized discovered fields. It has been decided that government’s share of profit petroleum during the extended period of contract shall be 10% higher for both small and medium-sized fields, than the share as calculated using the normal PSC provisions in any year during the extended period and hence will vary from year to year based on the investment multiple and post-tax rate of return.
Other key projects include recovery potential of about 100 mboe from polymer flood in the Mangala and Aishwariya fields. Cairn India said that it continues to take measures to improve economics of key projects in core Mangala, Bhagyam and Aishwariya fields, Barmer Hills and satellite fields, and invest in pre-development activities to ensure their readiness for development with grant of extension of PSC.