Vedanta Group’s oil exploration and production vertical- Cairn Oil & Gas will be investing $4 billion over a period of 3-4 years, its Chief Executive Officer (CEO) Prachur Sah said. The announcement comes at a time when the international crude oil prices are soaring high and India imports 85 per cent of its oil from outside. The investment will be used by the company in increasing the domestic production which will help in cutting the imports.

In an exclusive interview with the BusinessLine , he talked about the oil and gas industry, government’s policy support for exploration and how India can reduce its carbon footprint being one of the fastest growing economies.

The crude oil prices have increased significantly and is posing a challenge for India. What is the implication of growing prices for Cairn?

Growing crude oil prices are actually detrimental to the economy. We can all feel the pain even at the pump levels because of higher prices. And now for Cairn it further reemphasizes our vision and philosophy that no matter what happens, the country has to increase its domestic production. It is important that the policy regime and the ecosystem should enable an increase in the production of domestic oil and gas of India if, in the long run we have to reach the $5 trillion economy and become self dependence. So from Cairn point of view we remain focused on making new investments in the upstream side to increase domestic oil and gas production. In fact, we are taking some concrete steps to add, you know, in the last couple of years we spent more than $2 billion to increase the investment in oil and gas upstream and we continue to do this in a similar way.

So how much investment are you planning in the coming times?

We will be investing about $4 billion over a period of 3 to 4 years to realize our ambition of increasing our production to 50 per cent of India’s production. We are working with the government and it has given some positive response as well in how it can work with us to increase the recovery from the existing blocks, in investing in unconventional shale, which can be a game changer for the oil and gas industry and how we can strengthen our resources by doing more exploration in new blocks.

What policy support do you need from the Government for this investment?

The Government has been receptive so far. When it comes to existing mature assets, to increase the recovery or explore shale, these are very capital intensive projects. So in the current set up, the entire 70 per cent share of the revenue goes to the Government. So if we look at the operating cost and investment undertaken to make this project viable, the current setup is not viable. So the idea is to make it more viable where the Government continues to make the larger revenue and we can also make this investment profitable. The right kind of fiscal setup needs to exist in the oil and gas sector especially in recovery and shale. The Government is working on these policies and we are waiting as to how they will pan out.

Are you looking at any partnership or association for this investment?

One is the partnership from the technology front, so we are partnering with the leading global players like Haliburton, Baker Hughes among others. 

What is the strategy to increase the production in India?

For us to double our production we are strategising in terms of long and short term. For the short term, in all the existing and mature fields, we want to invest in technology which can help in increasing the recovery up to 60 per cent from the current 40 per cent. We have some projects already lined up and we are working with the Government how to enable this. These are capital intensive technologies for the projects to become viable. The second is shale exploration, which we believe has a potential to add in the production. We are aggressively looking to invest in this space. The third is exploration from the existing and mature fields. For the long term we are looking at the new blocks to explore over the next three to four years.

What kind of policy support are you expecting from the government, especially as you aim to double production capacities in the coming years?

The government has been supportive, as is visible through a series of policy decisions in NELP, HELP and OALP. Our prime ask from the government has been in reduction of levies. For our blocks, as much 70 per cent of the revenue generation goes as levies, while the cost of running the operations takes up about 20-25 per cent. This makes it difficult for us to invest in capital-intensive technologies that can augment production. Ideally, if the levy structure can be brought down to 40 per cent, which would still be higher than the global benchmarks of 30-35 per cent, we can unlock significant investment in older assets to increase production.

Along with that, there is an urgent need to consider domestic parity for crude oil producers. Exporters to India are today at an advantageous position vis-à-vis domestic producers – this is not ideal. The gas regime in the country has evolved and there is sufficient marketing freedom – crude too should have this kind of freedom. We end up paying heavy taxes that discourage investment. Price parity and marketing freedom would encourage many more investors to come to India. The investment required to double production is huge and we must enable upstream producers through easier taxes, reduced levies, enabling exploration licensing, etc.

Another important consideration right now is how we can deploy capital intensive technologies for pre-NELP blocks that continue to form the bulk of our production capacities. We must focus on production increase and not just revenue growth. With investments, revenue will grow. This is a virtuous cycle of investment, production, and then revenue generation. Finally, the government is biggest stakeholder, and it has been working to support players like us in the sector.

There is a lot of talk on climate change and the role big oil companies can play in the global energy transition journey. What are your thoughts, do you think oil & gas production can be sustainable?

This is perhaps the most important topic of the day. I personally believe we should not think of these two aspects as mutually exclusive. India is importing 85 per cent of its crude and this is expected to continue as domestic demands will only increase. So, the first aspect is that increasing domestic production is unavoidable. Following that is the consideration of making activities sustainable. We must align our activities to larger global visions of Paris Climate Act and other commitments.

From a Cairn perspective, we have been deliberating on how we can reduce emissions. There are specific projects we are working on to understand the potential of using renewables in our everyday operations. We have been studying carbon sequestration techniques and other methods to reinject caron dioxide back into our operations – this method can also ramp up production. We have also conducted plantation and farming drives in our areas of operation. In Barmer, 84ha fallow land has been made green through plantations and farming.

For long-term sustainability, gas is a key alternative. We are also considering ways to increase our gas capacities. Our aim is to make a holistic impact – whether in driving economic goals for the country or in ensuring socioeconomic growth

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