Cairn Oil’s $1-b enhanced recovery project takes a Covid hit

Twesh Mishra New Delhi | Updated on July 20, 2020

A Cairn India a storage facility for crude oil at Mangala oil field at Barmer in Rajasthan   -  REUTERS

Low crude oil prices due to economic slump also plays spoil port

Cairn Oil & Gas, a part of the Vedanta Group, is reworking its operations as crude oil prices remain lower than expected amidst the Covid-19 crisis and the resultant economic slump. The company also said that its $1 billion Alkaline Surfactant Polymer (ASP) enhanced oil recovery project has been impacted and it is now revisiting the project to make it economical.

“Anything below $45 a barrel is not appreciable for anybody in the industry. If you want a consistent growth in sector, the right number would be around $55-60 a barrel or above that. If you want bare minimum survival, meet all obligations, and do a small amount of exploration, it should at least be $50 a barrel. To work at lower prices, royalties and cess are to be waived for Brent below $50,” the company said in a statement responding to BusinessLine.

On the status of the enhanced oil recovery project, the company said that it has been impacted and the company was revisiting the project scope to make it economical. In August last year, Cairn Oil and Gas said that it had drawn up plans to spend over $1.1 billion in the coming 18 months to improve the crude oil production from the Mangala, Bhagyam and Aishwarya fields in Barmer, Rajasthan.

“The implementation of ASP EOR will raise the average cost of production in Barmer from $8 a barrel to $15,” Ajay Kumar Dixit, the then Chief Executive Officer at Cairn Oil & Gas, had said.

Exit of employees

The company has also been seeing exits of employees. Dixit’s was one-high profile exit. According to sector watchers, Cairn Oil & Gas has cut some 300 jobs.

On employee exits, the company said, “The recent exits are a result of organic career progression, voluntary movements, job rotations within the conglomerate and natural exits on account of annual appraisals, retirement and non-renewal of contracts. We will continue with our recruitment process to ensure growth and business continuity.”

But some employees, who were recently let go of, attribute it to unmet expectations of promoters from the oil and gas business. “Unlike the metals and minerals business, the oil and gas business has much more uncertainty. You can never be sure that there will be a salvageable resource after spending on drilling. Somehow, the government policies regarding cesses and approvals were not very ideally favourable for the company either,” a former employee said.

“It seemed the promoters were expecting much better results from the senior executives,” the employee added.

Countering this, the company said: “We have won 51 of the 87 blocks in the OALP (Open Acreage Licensing Policy) and Discovered Small Fields (DSF) bid rounds. The overall acreage for the company has increased from 5000 sq km to approximately 65,000 sq km in the last two years. With such an exponential increase in the size of its acreage, the management is working on a plan to increase production and contribute to the energy security of the country.”

Cairn Oil & Gas has also sought a relaxation in the timelines for executing its recently won projects. “We have sought an extension of the OALP exploration timeline because the lockdown has caused stoppage of all seismic and related activity... Most of the seismic equipment comes from China, which is now stuck since December at ports in China,” the company said, adding, “The existing production offtake was initially reduced by our customers but have normalised now.”

Published on July 20, 2020

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