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| ONGC wants to exit Cairn fields |
| BS Reporter / Mumbai May 08, 2009, 00:51 IST |
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Says royalty, cess make project unviable.
Two months before crude oil production from Cairn India’s Barmer fields in Rajasthan is set to begin, state-owned Oil and Natural Gas Corporation (ONGC) has sought permission from the government to relinquish its 30 per cent stake in the block. Cairn India — which is the operator of the block — holds the remaining 70 per cent stake.
ONGC wants to exit the block saying the cess and royalty it would have to bear would make its investment economically unviable.
“We have been asking for reimbursement of the royalty we pay. Unless the issue is sorted out, it would be difficult for the board to approve further investments there,” said a senior official from ONGC.
The company wants the ministry of finance to examine the issue. Cairn India declined to comment on the issue.
Under the licence conditions for the Rajasthan block, ONGC took a 30 per cent stake in the discovery without any cost but has to bear 100 per cent of the royalty, in addition to development costs and cess, which makes it an unviable proposition for the company.
“Royalty of 20 per cent has to be paid to the government on the price Rajasthan crude may get. At $40 a barrel, the royalty for 6 million tonnes a year of average output works out to $352 million (Rs 1,760 crore),” an ONGC official told a news agency.
ONGC also has to bear 30 per cent of the $ 2.4 billion cost of developing the fields. Cairn also wants ONGC to pay its share of Rs 2,500 per tonne cess levied on crude oil (Rs 15,000 crore annually).
“The project with these levies does not make economic sense to us,” the official said, adding that ONGC wants Cairn to reimburse all the investment it has put in with a reasonable rate of return.
Asked about the development, Petroleum Secretary R S Pandey said he was not aware of any such development on ONGC’s part.
According to agencies, ONGC wrote to the petroleum ministry last month saying it wants to relinquish its 30 per cent interest in the block RJ-ON-90/1 unless the government reimburses the royalty it has to pay on behalf of Cairn.
Cairn will reach its peak oil production of 1,75,000 barrels of oil per day (bopd) by 2011. Initial production from the fields would be 30,000 bopd.
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