Cairn in talks with ONGC on Rajasthan pipeline

Cairn India, the company which discovered the country's largest oilfield in more than two decades, today said it hoped to find a solution for the evacuation of crude oil from its Rajasthan fields by June this year.

Mangalore Refinery and Petrochemicals Ltd, a subsidiary of Oil and Natural Gas Corp, Cairn's 30 per cent partner in Rajasthan fields, is the government-appointed buyer of the crude oil. However, MRPL is reluctant to take the 'waxy' oil, sending Cairn to look for other buyers.

"We are in discussion with ONGC and the government for laying a pipeline from Barmer to the Gujarat coast. We have proposed that Cairn-ONGC will share the 600-km pipeline at $700-800 million in the 70:30 ratio and sell the crude oil to refiners in Gujarat and elsewhere," said Cairn India Chief Executive Rahul Dhir, from Mumbai.

The pipeline will also touch Indian Oil's Viramgam pipeline terminal in Gujarat, which is connected to IOC's Koyali and Panipat refineries, Cairn's potential customers.

"If the government permits, the crude oil can also be sold to private refiners (Reliance Industries' Jamnagar and Essar Oil's Vadinar refineries in Gujarat can also be assessed by the planned pipeline)," he said.

From the Gujarat coast port, the crude oil can also be shipped to Mumbai refineries of Hindustan Petroleum and Bharat Petroleum.

"We have progressed well on the pipeline and a solution looks in sight by June," Dhir said. The pipeline will take 12-15 months to build and will be commissioned around the same time when Rajasthan fields start producing in 2009.

Cairn is likely to make an application for the right of use (ROU) for the pipeline shortly.

Industry sources said BPCL wants to pipe 100,000 barrels per day of Rajasthan crude to its proposed Bina refinery in Madhya Pradesh while Reliance has indicated a demand for 30,000 bpd for its existing Jamnagar refinery and a similar quantity in the upcoming refinery of Reliance Petroleum. Essar Oil can take between 30,000 to 40,000 bpd crude.

BPCL and HPCL can take 30,000 bpd Rajasthan crude in their Mumbai refineries while IOC's Koyali and Panipat refineries can each take 20,000 bpd.

Cairn is ready to start production in small quantities from its Saraswati field and it is waiting for finalising of oil sales. In another 12-months, it can put Raageshwari oil field to production but the giant Mangala field would come in 2009 when output peaks to 150,000 barrels per day.

Sources said ONGC plans to get its subsidiary MRPL de-nominated as the official offtaker of crude oil found by Cairn Energy in Rajasthan and instead sell it to refiners.

Dhir said for best results, the pipeline has to be treated in consistency with the upstream development plant ie include the pipeline in the field development cost and allow cost recovery from sale of crude oil.

"A proposal is currently being prepared for submission to the Government seeking approval to include within the Field Development Plan a pipeline to transport Rajasthan crude from Mangala to a coastal terminal facility," he said.

The proposed routing of the pipeline will allow access to the existing pipeline infrastructure and refinery network, with a final coastal delivery point that also affords access to the majority of India's refining capacity.

The conceptual engineering and route identification for the pipeline are at an advanced stage, he said.

"Cairn India and ONGC are continuing discussions on the approach to pricing of the Rajasthan crude," Dhir said.

Through third party discussions and studies relating to the evacuation of the crude, Cairn India now has a comprehensive understanding of the construction schedule for a pipeline from the fields in Rajasthan.

Specialist consulting engineers have been retained to help develop this knowledge base further and to assist Cairn India in addressing the associated technical and commercial issues involved.

"Cairn India is aligned with its joint venture partner ONGC on a midstream solution," he said, adding his company will be the operator of the pipeline.

Meanwhile, a company press release said that Cairn's Rajasthan oil reserves exceed 3.6 billion barrels. Cairn has so far made 18 discoveries in the Rajasthan block.

The current estimates for the proven and probable (2P) reserves in place for the six fields Mangala, Bhagyam, Aishwariya, Saraswati, Raageshwari Oil and Raageshwari Deep Gas total 2.2 billion barrels of oil equivalent (boe).

"The additional smaller or low permeability fields and reservoirs have an estimated 2P hydrocarbons in place volume of more than 1.4 billion boe," it said.

The first phase of development drilling on Saraswati has been completed and development drilling is now underway on Raageshwari. Development drilling on Mangala is scheduled to commence in 2008.

Government has approved the Declaration of Commerciality for Bhagyam, the second largest field in Block RJ-ON-90/1, along with the Shakti field. FDPs for Bhagyam and Shakti are expected to be submitted to the GoI in Q2 2007.