The Hindu Business Line : ONGC may lose $340 m for buying stake in Cairn fields

OIL and Natural Gas Corporation (ONGC) said on Saturday that it could lose $340 million (Rs 1,400 crore) as royalty and production cess payouts over the next 15 years for acquiring 30 per cent stake in Cairn Energy's Mangla and Aishwariya oil fields in Rajasthan.

"The exercising of walk-in rights of 30 per cent will bring us the liability of paying 100 per cent royalty and production cess equivalent of our share (30 per cent). On these two counts, we estimate a loss of $340 million over the life of the field," the ONGC Chairman and Managing Director, Mr Subir Raha, told newspersons here.

The two oil fields are targeted to produce between 80,000 barrels and 100,000 barrels per day from the end of 2007. ONGC had exercised its walk-in rights to take 30 per cent stake in the two fields late last month. Though the oil finds in Rajasthan are the largest in more than two decades, ONGC was earlier reluctant to exercise its right to take 30 per cent stake in the block because of the burden of paying royalty and cess.

Mr Raha said as per production sharing contract, the company was needed to pay Rs 1,800 per tonne as cess but in the case of ONGC, "Cairn has agreed for Rs 900 per tonne as royalty." Despite the halving of royalty charges, ONGC would suffer a net loss of $340 million after taking into account the realisation from the fields, he said. The blocks were awarded to Cairn Energy before the New Exploration Licensing Policy rounds. The British oil exploration company is the operator of the block and owns 70 per cent of the share.

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