Cairn India may get only 5 yrs more in Rajasthan block

The company is looking to invest more than $3 bn over the next three years

Cairn India is unlikely get more than five years of extension for its Barmer block, with the Directorate General of Hydrocarbons (DGH) rejecting its proposal for a 10-year contract extension up to 2030. A shorter extension is seen casting a shadow on the investment plans the Anil Agarwal-promoted company had lined up for the next few years.

The firm is looking to invest more than $3 billion over the next three years. For this, an extension in the production-sharing contract (PSC) is crucial. 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.

The current PSC for the Rajasthan block is valid till May 14, 2020. The rejection of an additional 10-year term comes on recommendations of DGH. "According to DGH, the Rajasthan asset is primarily a crude oil-producing block. So, the PSC can be extended for only five years. An extension for 10 years is generally allowed for gas fields," an official said.

Around 13 PSCs are expiring between 2019 and 2025. These include the Panna Mukta Tapti fields held by ONGC, Reliance Industries and BG. "There is likely to be a policy decision by the government on handling of extensions for these fields," said a senior official.

Cairn India and its partner ONGC expect the production from their Barmer fields in Rajasthan to zoom from about $200,000 barrels of oil equivalents at present to $300,000 barrels by 2016. DGH rejected the proposal for a 10-year extension, as the block produces crude oil. The company, though, claims it has a potential of producing 15 million standard cubic metres a day (mscmd) of gas, which is higher than Reliance Industries' current production from its KG-D6 block.

At present, the Vedanta group company holds a 70 per cent 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. "The PSC provides for extension and our request is currently being examined by the government. We are confident that a positive decision will be taken by the government at the earliest in the interest of maximising production," said Cairn India Chief Technology Officer Sunil Bharati in response to a query. He said the block had significant hydrocarbon reserves and an extension, coupled with the company's committed investment, would enable significantly higher levels of crude oil and natural gas production for benefit of all stakeholders.

The recent development comes at a time when fields like Mangala, Bhagyam, Aishwariya, Raageshwari and Saraswati in the block, too, are expected to have good gas reserves. The company had recently floated global tenders for setting up a natural gas transportation pipeline and a gas processing terminal. While a minor quantity is produced commercially from Barmer, the remaining 30 million standard cubic feet come from the RJ-ON-90/1 block from the Raageshwari deep gasfield. And, associated gas along with crude oil from the Mangala and Bhagyam fields are used to meet the energy requirements at the Mangala Processing Terminal.
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• Cairn India is looking to invest more than $3 billion over the next three years
• For its investment plan, an extension in the production-sharing contract is crucial
• In April last year, the company had written to the petroleum ministry that the block had commercial production potential till 2040, so the PSC should be extended till 2030
• The current PSC for the Rajasthan block is valid till May 14, 2020
• The rejection of a 10-year term could be because an extension of 10 years is allowed for gas fields (the Barmer block is primarily a crude oil-producing one)