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Cairn India wants the Government to renew its contract for operating oilfields in Barmer, Rajasthan, beyond five years. The oil major’s contract is valid till May 14, 2020, and it is keen on operating till the economic life of these oilfields.
“This block (Rajasthan) has the economic production potential much beyond the term of the contract (beyond 2040),” P. Elango, Chief Executive Officer, Cairn India, told Business Line .
“The timing of giving extension is critical, as the sooner an agreement is reached, the better it is for finalising financial commitments and contemplate projects to be undertaken,” he added.
The company has taken up the matter with the Ministry for Petroleum & Natural Gas. Elango said: “Earlier, the feedback from the Government would be, why the hurry when the contract is expiring in 2020. But, now they (Government) seem to understand the sense of urgency, as huge investments are at stake.”
An internal committee has been constituted by the Petroleum Ministry that will come out with a policy for such blocks awarded prior to licensing rounds, he added.
Production sharing
The contracts signed under the New Exploration Licensing Policy (NELP) do not have any ‘specific term’ for their validity, and hence, continue to be in force as long as commercial production lasts. A similar mechanism can be considered for Rajasthan production sharing contract also, he said.
The Rajasthan block, though under a production sharing contract, was awarded prior to the NELP regime.
Asked if there were international examples, he said: “We have given hundreds of global examples where the contract depends on the economic life of the block. The economic life is determined by two facts — volumes and price.”
The Rajasthan block (RJ-ON-90/1) production sharing contract prescribes for initial extension of five years on general merit basis, and a 10-year extension, if the gas sales profile extends beyond 2020. It also provides for subsequent indefinite extension.
But, in the present case, a 10-year extension is applicable, as it is mainly an oil producing asset.
“By adopting a similar system for Rajasthan, the Government will not actually be deviating from any contractual norm,” Elango said.
Currently, Cairn and its partner ONGC are producing 180,000 barrels a day from the Barmer oilfields and want to close this fiscal with 200-215,000 barrels a day.
According to the company, the total resource base supports a vision to produce 300,000 barrels a day (equivalent to a contribution of more than 35 per cent of India’s current domestic crude production), subject to further investments and regulatory approvals.
Cairn acquired 100 per cent stake in the block from Shell in 2002, which had signed the contract in 1995.
After the first oil discovery was made in 2004, ONGC came in as a partner. Today, Cairn holds 70 per cent and ONGC 30 per cent.
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