Cairn India wants a firm assurance from the Government that the Barmer oil block contract will be extended by a minimum of 10 years to enable the explorer to plan its financial commitments.
The production-sharing contract for the Barmer block (RJ-ON-90/1), acquired before the oil and gas auction rounds were held, expires in 2020. So why this hurry to seek commitment?
“Future investments are planned based on the remaining economic life of the field. The timing of the application should be at the contractor’s discretion, and it needs to be recognised that each field will have its unique circumstances and timings,” a company source said.
$3-b spend
Cairn already has a plan to invest $3 billion over three years to improve reserves and increase production, primarily in Rajasthan, the sources said, adding that the company is also betting big on shale oil/gas from the area. This requires more investments in technology.
In 2002, Cairn acquired a 100 per cent stake in the block from Shell, which had signed the contract in 1995. After the first oil discovery was made in 2004, ONGC came in as a partner. Today, Cairn holds 70 per cent and ONGC 30 per cent.
On the global norm for extending production-sharing contracts, an industry observer said “all countries define the exact term for extension based on the remaining economic life of the field, with some countries applying a cap of 15-20 years on the extension.”
For example, Colombia does not define any ceiling on the extension period based on the economic life of the field, Indonesia and Nigeria award an extension period of 20 years, while in Egypt such contracts are extended up to 15 years.
India norm
The current norm in India is an extension of 5-10 years based on associated or non-associated gas production under the contracts before the oil and gas auction regime.
This is not aligned to the economic life of the field. For agreements signed under the New Exploration Licensing Policy there is extension of the mining lease rather than the contract itself.
Besides, the approval process should also be quick. The Brazilian National Petroleum Agency takes a maximum three months from the submission of request. If no decision is announced, it is deemed approved.
In the US, oil producing lands could be owned by federal, state or private institutions. In all cases, the primary term of production is a maximum of 10 years. However, the lease is automatically extended if production is good.