We are confident of maintaining production from the Rajasthan block at FY15 levels. A large part of capex for the key projects has already been incurred, said Mayank Ashar.
The road ahead is challenging for Cairn India. In a candid conversation with Siddhartha P Saikia, Mayank Ashar, managing director and CEO of Cairn India, discusses what the explorer is doing about output and the reserves that could be added if the government extended its Production Sharing Contract by ten years. Excerpts:
The crude oil output from Barmer has been going down and needs more polymer injection to ramp it up. With a lower capex programme, are you confident of meeting the FY15 production levels?
We are confident of maintaining production from the Rajasthan block at FY15 levels. A large part of capex for the key development projects—Mangala EOR and Aishwariya Infill—has already been incurred and we have planned for the balance capex requirement in our overall capex spend for the year. We believe additional production from these projects in the second half of the current fiscal year would help us meet our target.
In order to get better value for crude oil, Cairn India had proposed to the government several steps including a swap mechanism to sell abroad and a review of the pricing mechanism. But none of these moved forward. How do you plan to get better value for the crude?
The price currently being realised for the Rajasthan crude is around 10-12% lower than its true value. Lower realisation is resulting in potential yearly loss not only for the producers but also the national exchequer.
Cairn has pitched for permission to swap the crude from India’s largest onshore field on a barrel for barrel basis, explaining that exports would also lead to an increase in revenue for the state and central governments. We continue to engage with the government on this.
As a pre-condition for the contract’s extension, the government has asked for a tentative exploration programme for 10 years beyond 2020. Could you highlight how much do you plan to add to the recoverable reserves and what capex that would entail?
The industry is actively engaged with the government on various strategic issues. We believe that a policy revision would enhance the investment climate for the oil & gas sector in India.
On the Rajasthan PSC front, we continue to observe traction with the regulatory bodies and our JV partner. We are optimistic about the extension of the PSC by 10 years on the same terms. We estimate an addition of more than 250 million barrels to the reserves at the Rajasthan block in case of extension of PSC till 2030. Our estimates are based on the already producing fields and the new projects with FDP in advanced stages. These additional reserves pertain to our MBA field only, for which a significant part of the investment has already been made.
Cairn’s blended operating cost increased by 11% QoQ to $6.4/boe for the quarter ended Sept 30. Do you expect it to go up further?
The per unit operating cost was higher in the last quarter mainly due to a lower production volume and an increase in polymer cost due to a higher injection volume. While we expect our water-flood cost for the Rajasthan block to be about $5/boe, the blended cost is expected to be higher, though in single digit.
Cairn India has reported a cash equivalents position of Rs 17,943 crore as on September 30. How do you propose to monetise the same?
Cairn India remains committed to creating long term shareholder value, retaining the flexibility to invest as oil prices improve and costs bottom out. Also, as we have indicated, the company aims to have healthy cash flows post capex so as to retain the capacity to pay dividends subject to a Board approval.
How do you think would the merger with Vedanta Ltd help Cairn India?
The merger with Vedanta Limited will generate additional value for our shareholders and derisk Cairn India by providing access to a portfolio of diversified Tier-I, low cost, long-life assets for significant near term growth.
While our Rajasthan fields continue to remain our core asset, the financial strength of the enlarged group would ensure greater access to capital, furthering development of the Indian oil & gas sector.