Cairn India, ONGC draw 10-yr roadmap for Barmer block

Cairn India and its joint venture partner ONGC have drawn up a 10-year roadmap for development of their Barmer hydrocarbon block in Rajasthan. The plan brings the exploration firms a step closer to getting an extension of the block’s lease by 10 years beyond 2020, when the current lease ends.

On July 28, the Delhi High Court asked the Centre to decide “within five weeks” whether it will extend the production-sharing contract (PSC) for the block — RJ-ON-90/1, spread over 3,111 sq km west of Barmer.

Sudhir Mathur, chief financial officer and interim CEO, Cairn India, told FE, “The PSC matter is sub judice. Pursuant to the Delhi High Court’s directions, ONGC in the capacity of the contractor (as per the PSC) communicated its consent to the extension of PSC on the same terms and conditions for a period of 10 years. Now the court has mandated the government to provide its decision within five weeks from the last hearing held on July 28, 2016.”

The roadmap has been made based on the knowledge about the reserves that are currently available with the explorers. This is because the exploration and development of oil and gas fields keep evolving in terms of potential or price change and economic viability.

“We are working on key growth projects. The first being Raageshwari Deep Gas (RDG), which is expected to produce 25,000-30,000 boepd (barrels of oil equivalent per day). Following up on the successful execution of Mangala enhanced oil recovery (EOR) project, we are embarking on executing the next two EOR projects at Aishwariya and Bhagyam which are collectively expected to produce around 15,000-30,000 boepd. We are confident that in the next six to nine months, we would be able to deliver 18% IRR (internal rate of return) in a $50 oil world. We expect to see returns from these investments by 2019,” Mathur explained when asked about contours of the plan.

Mangala EOR contributed an average of 14,000 boepd during FY16. Gross average production from the Rajasthan asset accounted for 169,609 boepd in FY16. “This financial year, we are on track with our guidance of maintaining the Rajasthan production broadly at FY16 level,” Mathur said.

The core Mangala, Bhagyam and Aishwariya (MBA) fields at the Barmer block have hydrocarbons initially-in-place (HIIP) of 2.2 billion barrels of oil equivalent (boe), and the company expects to ultimately recover 50% of the resource base through water flooding and EOR. Other Rajasthan fields have HIIP of 4.2 billion boe — an increase of 356 million boe over the previous year driven by active appraisal programme during FY16. Since resumption of exploration in the Rajasthan block in 2013, the Cairn India has announced 13 new discoveries, taking the total count to 38.

Cairn India and ONGC witnessed a significant decline in its capital investment during FY16 in response to the sharp decrease in oil prices. Net capital expenditure for FY16 was reduced to $248 million from $1.1 billion in FY15. During FY17, a net capital expenditure of $100 million is planned with 20% for exploration and 80% for development activities.

FY16 has been tumultuous for the global oil and gas industry, as crude oil prices reduced drastically. The average spot price of Brent crude fell by 21% from $108 barrel in FY14 to $85 per barrel in FY15, and dropped another 44% to $48 a barrel in FY16, with crude oil touching a 12-year low.

By contributing to around 23% of domestic crude production in India, the Rajasthan block it has significantly reduced the crude oil imports in the country. In FY16, Cairn India’s Rajasthan block alone contributed Rs.9,099 crore ($ 1.4 billion) to the national and state exchequers. Cairn and ONGC hold the Barmer assets in a 7:3 ratio.