Cairn India is betting big on gas production from its block

Will invest $200 million over the next three years in developing natural gas finds in its Rajasthan block

Vedanta group-controlled Cairn India would invest $200 million over the next three years in developing natural gas finds in its Rajasthan block. The company said the project is being firmed up and the gas business would be "large and substantial" and would be another major growth area for the company.

"This gas is very similar to that in North America. We are sizing it up now and we are bringing in technology from North America for this," said Mike Yeager, chairman, Operations Review Board, Cairn India. Cairn India held its eight annual general meeting in Mumbai today.

Last March, Cairn India started gas production from the block, with a cumulative sale of 2.7 billion standard cubic feet in 2013-14 fiscal. It, however, estimates a higher gas potential in the block and is building facilities that can handle up to 100 million standard cubic feet per day (mmscfd) of output, the company said in its annual report. The $200 million investment during FY 2015-17 will be towards developing existing Raageshwari Deep Gas field and associated field facilities and pipeline.

Overall, Cairn India will invest $3 billion towards its capex programme in the next three years. "We are confident that this will lead to a reserve replacement ratio of 150% and help us deliver a growth of 7% to 10% in production over the next three years from the Rajasthan block," Navin Agarwal, Chairman, Cairn India, said.

In April last year, it had written to the petroleum ministry that the PSC should be extended in the first instance till 2030, since the block had commercial production potential till 2040. Agarwal, during the AGM said, the company is in talks with the government and expects the extension to come soon.

A shorter extension could cast a shadow on the investment plans the Anil Agarwal-promoted company had lined up for the next few years.

"We are entitled to the extension. We are actively engaged and we expect something will happen soon. Even if we get a five year extenstion to begin with, does not mean we will not get further extension. In this case its unlikely that our plans with regard to the block will change," said Agarwal.

At present, the company holds a 70% stake in the Rajasthan block, while ONGC owns the rest. In 2002, Shell had sold this block to Cairn India. The original PSC with the government was signed by ONGC and Shell in 1995.

Addressing the shareholders, Agarwal added Cairn would participate in the next round of new exploration and licensing policy (Nelp) also.

Cairn produced an average of 7 mmscfd in 2013-14, the report said. "With the addition of higher capacity rigs in the drilling program, Cairn India is drilling two high impact prospects to test potential gas accumulation in the deeper sections. The initial results obtained are encouraging and testing is underway," it said.

As on March 31, 2014, the Rajasthan block has estimated in-place resources of about 4.6 billion barrel barrels of oil and oil equivalent gas. The prolific MBA oil fields, which are currently on production, hold 2.2 billion barrels of resources. It estimated a resource base of about 71 million barrels of oil equivalent in the Raageshwari Deep Gas field but the block may hold larger reserves. Mangala, the largest of the oil and gas, finds Cairn has made in the Barmer dessert block, was put into production in August-end 2009 and is currently producing about 120,000 barrels per day.

Bhagyam, the second biggest find in the area, began producing in 2012 and is currently doing about 25,000 bpd. Aishwariya oilfield, third of the famous MBA (Mangala-Bhagyam-Aishwariya) discoveries in the block, is at about 25,000 bpd. Cairn holds 70% interest in the block while state-owned Oil and Natural Gas Corp (ONGC) has the remaining 30%.