`Discussions currently on with Indian Government and third parties'

Richa Mishra

London, Sept. 5

The midstream sector of the oil and gas industry in India is set to see some stiff competition. In the wake of the current worldwide competitive market for resourcing and procurement and the possible integrated approach to the upstream and midstream segments of the oil and gas sector, Cairn Energy Plc is eyeing midstream activities in the country.

"For potential midstream and upstream integration discussions are currently on with the Government of India and third parties," Mr Michael Watts, Exploration & New Business Director, said.

Mr Watts said that the company has been considering midstream integration and studies are underway. There are also preliminary discussions being held with third parties and the Indian Government. It is believed that the company is also considering selling its excess crude to refinery companies such as Reliance Industries and Essar, among others.

When asked what prompted the company to explore this opportunity when it was not mandated under the production sharing contract (PSC), Mr Watts said that the company viewed this as a possible opportunity to secure the value of the project and a potential to gain further benefit through integration and schedule control.

As per the PSC, Cairn's responsibility ends at the exploration and production stage. Under the PSC, the Government of India, through its nominee, is responsible for the purchase of crude oil and the transportation of the crude oil produced from the delivery point at the field facilities to the refinery (midstream activities). Transportation entails the construction of a pipeline downstream of the delivery point to handle the expected volumes of crude oil.

While declining to elaborate on the third party discussions that were underway, the company said that through the discussions and Cairn-led studies relating to evacuation of the crude, the company was building up a comprehensive understanding of the likely construction timescale for the pipeline and the associated technical and commercial issues involved.

"In this context, Cairn, while aware of its obligations under the PSC, believes that it is appropriate to look at ways to mitigate the risks to the upstream development associated with the midstream schedule and to asses the potential to benefit from the exposure to the whole production and oil sales chain," Mr Kevin Hart, Finance Director, Cairn Energy, said.

The company is looking at whether there are advantages for Cairn to be involved in the midstream, as it is already in the upstream sector of the country, he added.

(This article was published in the Business Line print edition dated September 6, 2006)
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