You are here: Home » Opinion » Financial X-Ray
Business Standard

Cairn India: The lure of production increase

If Cairn gets nod to explore producing fields in Rajasthan, output could jump

Malini Bhupta  |  Mumbai 

It's rather well known that Cairn India is keen on raising output from its Rajasthan fields. At its annual general meeting, it has indicated it intends to raise output to 300,000 barrels per day (bpd), provided it gets the permissions from the ministry. It estimates 1.1 billion barrels of crude oil can be recovered from its Rajasthan fields. But the company needs to get the exploration clearances from the government to explore producing fields. Analysts say the Directorate General of Hydrocarbons had taken the view in 2010 that further exploration would not be allowed in producing fields under the pre-National Exploration and Licensing Policy (NELP) and NELP regimes.

Analysts believe the Ministry of Petroleum and Natural Gas is of the that exploration should be allowed in producing fields like Rajasthan. In a note, Bank of America Merrill Lynch (BofA-ML)says: “State-run ONGC (Oil and Natural Gas Corp) and Oil India are allowed exploration in producing fields in nomination regime and make several discoveries every year. Cairn India and partner ONGC have sought approval for further exploration in pre-NELP block RJ-ON-90/1 in Rajasthan.” For this, the production sharing contract (PSC) would need to be reworked, explain analysts.

Currently, it has approval to produce 200,000 bpd. Analysts at BofA-ML believe output from the three main fields can rise to 230-235,000 bpd and development of other discoveries like Barmer Hill would further boost output. Besides approvals for further exploration, it also needs to rework the PSC if it has to take output to 300,000 bpd. To grant exploration permits to the company, the ministry will first need to formulate a policy on it, which, analysts believe, may take some time.

Kotak Institutional Equities says output beyond 210,000 bpd will take at least two-three years to come through. “However, a higher production profile beyond FY15 without a considerable increase in reserves is unlikely to change the valuation of stock meaningfully given (1) the peculiar nature of production sharing contract, under which share of profit petroleum of the government will rise from the initial 20 per cent to 50 per cent (by FY16 as per our estimates) in stages, based on cost recovery and (2) applicability of full corporate tax rate of 32.4 per cent from FY17.” In view of the recent upward movement in crude prices, several brokerages have also revised the company’s earnings estimates.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Tue, August 28 2012. 00:16 IST