The Hindu Business Line : It costs Cairn India just $4.50 to produce a barrel of oil

Chennai, June 16 Do you know that it takes as little as $4.50 in India to produce a barrel of oil which costs $138 in the international market? Cairn India, which operates the Ravva (offshore Andhra Pradesh) and Cambay (offshore Gujarat) oilfields, spends just that much to produce a barrel of oil equivalent (The term “oil equivalent” includes gas output, which in the case of Cairn, is minor).

The price inches up to $7.50 a barrel if you include royalty and cess that are statutory levies payable to the government. In fact, the field cost (salaries of all the production staff plus consumables) for a barrel of oil equivalent is just $1.5 for Cairn as revealed in its Annual Report for 2007. It builds up as you add other administrative, finance and general expenses.

Three observations

These numbers have to be read in the context of three observations. First, Cairn is one of the lowest cost producers in India today given that the Ravva field is just a few kilometres off the coast; the cost of oil produced by ONGC, the biggest producer in the country, may be higher than this.

Second, the Ravva field contributed just 48,000 barrels of oil a day to the country’s total consumption of 2.7 million barrels a day. So, the benefit of production efficiencies will not be felt at the overall level.

Finally, oil companies continuously spend on field redevelopment to enhance output. Cairn was no exception as it invested in redevelopment of the Ravva field to maintain plateau output at around 50,000 barrels a day. This expenditure will also have to be considered for determining the final cost of production. For instance, Cairn’s average cost of production was $10.50 a barrel in the fourth quarter of 2007 and this included a work-over cost of $ 4.25 a barrel.

Cairn’s Annual Report for 2007 also reveals that the company realised an average price of $74.50 a barrel last year with the fourth quarter seeing an average realisation of $90.20 a barrel.