Winston Bott Jr is an American national but as executive director and chief operating officer of Cairn India, he says India is "our home". In a free-wheeling interview with Jyoti Mukul, he says it is frustrating when people perceive that the expertise in the company comes from Edinburg-based Cairn Plc or that the talent may be gone with ownership changes. Edited excerpts:
The Mangala field completed one year of production. What is next on the plan?
Cairn has successfully completed drilling of over 100 wells in Rajasthan, at present about 60 Mangala wells are currently producing and the other wells will be brought on stream in a staged manner during the ramp-up period. The updated exploration portfolio now consists of a most-likely risked mean estimate of 2.5 billion barrels of oil equivalent in place. The results of the successful Tukaram 2 and Tukaram SE-1 wells drilled in Q1 CY 2010, both of which encountered oil and gas, are under review.
We are also fully involved in phase two which includes the Bhagyam and Aishwarya fields and the extension of pipeline to the coast. We have invested about $4.5 billion in the first phase. Phase two will be another $1.5 billion. Production for Bhagyam will begin late 2011 and then three to six months for Aishwarya. Currently approved field development plan for Bhagyam is 25,000 barrels per day (bpd) and Aishwarya is 10,000 bpd. We think with same amount of money, it can produce more.
How far your partner ONGC is onboard on increasing production?
Now, we are trying to make sure that everybody has the common view of the reservoir potential so we are in discussion with our government partners, DGH and ONGC. We are confident to reach an agreement for producing 150,000 bpd with same number of wells. ONGC has a reservoir research work going on and we are doing some technical study with them. Reservoir has performed very well and that means that we can increase production with the same number of well. One of the wells has produced more than 11,000 bpd, the highest amount from an onshore well.
ONGC has been a good partner for us. We understand their position on royalty and that is an issue being examined by the government. Once that is resolved, the commercial issue with ONGC will be solved. Right now the government of India is aligned. If there is more oil, the government gets more profit petroleum and at the end of the project, they get more revenue. The government of Rajasthan gets royalty so they are aligned as well. Their interest will be in maximizing efficiency. At the end of the project, we recover our costs and get profit petroleum in proportion to 70 per cent equity. Because India is such a large importer of crude, every time you have a domestic barrel of crude, you replace an imported barrel and you do not spend foreign exchange. We are producing 125,000 barrels now and will be producing 150,000 bpd from Mangala and when Bhagyam and Aishwarya come, production will be 175,000 bpd. Earlier this year, we started talking of a vision to take it 240,000 barrels. We want to make sure that the studies are agreed by ONGC and the government.
What are the new things that are being tried out?
We are doing enhanced oil recovery pilot programme for drilling 10 monitoring wells in another six to 12 months. We have also proposed to our joint venture partner a pilot programme to locate redrilling and redrafting the Barmer hill which is an unconventional reservoir. It will help to increase reserves through better sweep and displacement efficiency. Through this plateau period can be enhance. In addition to the success of the first horizontal well at Mangala, which tested more than 11,500 bopd, Cairn has successfully drilled and completed eight more horizontal wells in Mangala. Six horizontal wells have been put on production.
Ever since the Vedanta deal has been announced there are apprehensions that whether Cairn India will have the same expertise since a non-oil company will take over. How far this is correct?
I have spent my 27 years in oil and gas industry and worked in 30-40 countries. I was brought here specifically to help build an Indian independent exploration and production company. We have a vision to build Cairn India as an Asian independent powerhouse focused on delivering India’s energy needs. We have a tremendous platform with diverse and capable workforce. It is little bit frustrating when people think that it is Plc that has done all the expertise. We built that here. We are the ones who have continued to deliver success. We have delivered two national assets in Rajasthan—the field and pipeline.
It was a tremendously complex project with one of the most complicated and challenging development. We did it faster than anybody else. The world oil and gas industry does not think of India as a technological innovator. We built in India a company so capable and innovative with Indian talent. We have used technology that has been used in pieces here and there in the world but not in the scale we have done it. We got the new fracking technology from North America. It works great for the Rageshwari gas field and has helped to increase flow rate three to four times.
Whenever ownership changes, some people move out of the company. How has your team taken the deal and do you think things will change?
That’s one of the key things we are focusing on. We are waiting for the new shareholder to come in. The perception was that it was Cairn Plc management that brought in the expertise but that is not right. They had representation on Cairn India board and they came only for Cairn board meetings and made board level decisions. But they are not the managers or executives running the company. Boards make decision based on strategy and business methods.
My expectation is that the management and the leadership team will stay. Vedanta’s presence will be more powering. Vedanta has obviously paid a premium and the only way you value add to something is that you grow it, like they have done elsewhere. I am optimistic. We have got everybody focused back on business. I do not think we have lot of issues with that.
Has there been any kind of interaction between Vedanta and Cairn India after the deal was announced?
It is too early for that. The deal has to be approved by the government after Cairn and Vedanta shareholders approve it. Then there will be decisions about the board make-up. We want to ensure business as usual and that our employees understand that.
You have worked with Devon Energy, what has been your experience with oil and gas deals? Do you think there are gray areas in India which do not make a distinction between a corporate deal or sale of assets and whether a government approval required for them?
I think people mix assets over shares and corporate ownerships. Asset ownership usually requires some sort of government approval and usually the clauses state that the government approval will not be unreasonably held. Government exercises regulatory control to see that someone capable of doing the job is buying an asset. Vedanta deal is a little bit different because it is a corporate deal and that involves clearance from the Securities and Exchange Board of India. There are adequate laws for it. Every government does it little bit differently. In lot of places in the US and Europe, there is a mature capital market that allows people to buy and sell all the time.
It is really about monopoly and taking care of consumer. I think India is coming to that and Sebi and the government are working on how best to do it. It is a good thing for India. Maybe that clarity will help the capital market and potentially result in more investment in India. One of the things you do not want to do is to buy an asset you never want to sell because you are stuck. If you want global oil company to come here and partner with some Indian company, they will want to know whether it works well when they sell it. You take away one of the risks for investors if they can freely buy and sell assets or shares in assets.
Every investor wants to be in an active market where you can sell and that is the maturity of the market. We are Cairn India and Vedanta will be our shareholders. We have Petronas, who are second largest shareholder in the company, and LIC. We have a job to get value for whoever is the shareholder and the ownership of the shares is not what runs the company. It is the executives and the people of the company and that is what we have built in India with lot of hard work and focus.
The government will be launching the ninth round of bidding for new exploration and licensing policy. Will Cairn India take part in it?
Cairn India has participated in every bid round. This is our home. We are always looking for opportunities. We will take a look at which blocks are being offered and how good they are.
In the last NELP round, there was a poor response from companies. Do you think there will be enough interest this time?
Whether others will come or not, I cannot say. In the previous round, Cairn India won two blocks. KG-DWN-2009/1 received the highest number of bids for any offshore block. Though we had to bid aggressively, but not overly so, the addition of this block has a high impact on Cairn exploration portfolio and increases our presence in the prospective KG basin.
The Government also awarded the Mumbai offshore block (now called MB-DWN-2009/1) to us. It gives the opportunity to test a frontier basin and will act as a focal point for further evaluation of the western offshore. The award of both blocks underlines our confidence in India’s hydrocarbon resources and commitment to explore for new oil and gas resources in the country.
Do you think the NELP terms need to change since the last round did not attract investment?
I think for India to make major impact in foreign investment in oil and gas, a couple of key things need to change and one of that would be what petroleum secretary S Sundareshan has been talking about and that is different type of licensing but that looks like initial thoughts right now.
I am a free market advocate. If you want more investors to come, you make it more inducive for investors. Most of the basins in India that are left and are not with the NOCs are very frontier and high risk. You got to balance it with the risk. There are competitive terms. India has benefited from that and you cannot change that since there is nothing wrong with that but the competition has driven it to the point where it is hard to get to an acreage at a price you can earn money. The competitive landscape in India is pretty tough because everything so frontier and risky. You need to have flexible development plans and develop a large service infrastructure sector.
What kind of flexibility?
By flexible development plan, I mean the ability to move quickly and change direction quickly when you have technological surprises. When you develop unconventional resources, you have to spend a lot of money in R&D. It is hard in a production sharing contract (PSC) structure. Such a structure is designed to maximize government revenue but it is not much flexible in terms of how much you can change on a year-to-year basis. In unconventional, you need flexibility to redirect the money and restructure very quickly.
