Cairn's Raj output will cut import bill by $6.8 bn: Report

Cairn India's prolific Rajasthan oil fields, which are likely to go on production next month, will bring down India's oil import bill by $6.8 billion, investment banker Goldman Sachs said in its latest report.

"Based on the recent discoveries in the Rajasthan basin, we believe that Cairn's peak production level can go beyond the company's present guidance of 175,000 barrels per day (8.75 million tons a year)," Goldman Sachs' conviction report on Cairn India said.

It forecast a peak production of 190,000 bpd (9.5 million tons a year) of oil from Rajasthan by end of 2012-13 fiscal.

"We now estimate this would represent about 20-22 per cent of India's total domestic oil production in FY13, making the Rajasthan project one of national importance. Rajasthan oil would likely bring down India's oil import bill by $6.8 billion at peak production, which is about 7 per cent of the country's net oil import bill," it said.

India, in 2008-09 paid $75.5 billion (Rs 3,41,887 crore) to the oil exporting nations to meet the energy requirement of the growing economy. In addition to this, the government incurred a fuel subsidy of $18 billion.

India's current oil production is around 660,000 bpd (33 million tons a year).

Goldman Sachs Investment Research has added Cairn India Ltd in the conviction list, which is the strongest rating in its June report.  India imported 128 million tons of crude oil in 2008-09 of which about 15 per cent was sweet (low sulphur) crudes. Most of the imports are from Middle East and West Africa which are subject to high transportation costs and some political risk.

"The current finds in Rajasthan can comfortably displace the imported crude, particularly sweet crude," a senior industry official said.

The production of first oil from Barmer basin field, India's biggest onshore discovery in 25 years, will be a historic event.

Output from the Mangala, Bhagyam and Aishwariya (MBA) fields is expected to ramp up quickly to around 30,000 bpd by the end of 2009, and reach a plateau of 175,000 bpd in 2011.

The development of this onshore project within 5 years from the year of discovery is an engineering feat for Cairn India, and puts to rest any doubts about the prospects of Indian sedimentary basins, the official said.

The MBA fields have proven and probable reserves of 685 million barrels of oil equivalent (boe), with around another 300 million boe of resource potential through enhanced oil recovery, Cairn says.

Cairn India operates the MBA fields with a 70 per cent stake, with state Oil and Natural Gas Corp (ONGC) holding the remaining 30 per cent.

Cairn's project will create over Rs 5,000 crore of earning through annual royalty for the Rajasthan government (Rs 8 crore per day).

In addition the government of Rajasthan would also be paid royalty for the usage of the pipeline. It will also create a considerable earning for government of India which has 50 per cent profit share in the first oil from the project.

"Cairn India, in our view, is the best Indian stock for taking exposure to the improving fundamentals of the oil market and is now our top pick in the Indian E&P space," the report said adding.