SG says Cairn India's contract for Rajasthan field can be renegotiated

But says it is better to wait for ONGC's comment on the government nominee and licensee of the block

Solicitor General (SG) Ranjit Kumar, India’s second-highest law officer, is understood to have opined that Cairn India’s contract for the Rajasthan oilfield can be extended for any period up to five years.

However, according to the SG, it is better to wait for the comments on the proposal from Oil and Natural Gas Corporation (ONGC), the government nominee and licensee of the block. The SG has also said the terms and conditions, including fiscal terms and conditions, of the contract can be renegotiated if extension is granted up to five years.

However, the contractor could get extension only for the development area from which production is taking place. Production is expected to take place beyond the economic life of the field and not necessarily the entire lease area.

The SG’s comments, which have come in response to a query from the petroleum ministry, have been submitted to the law minister D V Sadananda Gowda for approval. The government had signed the production-sharing contract (PSC) for the block RJ-ON-90/1 with a consortium of ONGC and Shell India in 1995 for 25 years.

As contractors, Cairn India has 70 per cent participating interest, while ONGC has 30 per cent. The current production rate from the block is 190,000 barrels of oil a day, while the cumulative production stands at 197 million barrels.

Cairn India had in February 2014 written to the oil ministry, seeking a 10-year extension in the PSC term, which is expected to result in higher production of crude oil and gas. The PSC provides for extension up to five years upon mutual agreement.

However, if commercial production of gas is found and is expected to continue beyond either this 25-year period or the period so extended, the PSC has to be extended for a further period with an upper cap of 35 years from the date of contract execution.

According to the PSC, the contract can be extended by five years in case of an oil field and by 10 years if it is producing gas. Cairn had made a formal application for extending the licence by 10 years, saying the block also has significant potential to produce natural gas.

The SG also clarified that extension of PSC is not a matter of right, but of mutual agreement. There is no automatic renewal or extension of contract, he is understood to have said, adding that an extension need not be for five years. The extension can be for two years or three years, according to the agreement and economic policies of the country.