Cairn India has approached the Delhi High Court seeking early decisions on the extension of its Rajasthan block (RJ-ON-90/1) production sharing contract (PSC). It has also sought fair pricing for its crude. Both these issues are presently pending with the government.
Said Cairn India CFO Sudhir Mathur: “At present, we are only going ahead with investments which are feasible till 2020. Making investments for stakeholders does not make sense without PSC extension.” He added that shareholders will not approve investments beyond 2020 unless there is clarity on the PSC extension, as oil and gas is a capital intensive business and returns happen over six-seven years.
Cairn is carrying out 3D seismic activity and finishing appraisals but not taking up new exploration, Mathur told reporters in Barmer.
The Rajasthan block is an acreage awarded prior to licensing rounds. The contract was signed in 1995, and Cairn acquired 100 per cent in the block from Shell in 2002. 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. In April 2013, Cairn made an application to the Petroleum Ministry for PSC extension. The existing contract expires on May 14, 2020.
Though the PSC of the block clearly mandates unconditional extension for five years, and 10 years in case of expected production of natural gas, it also says the extension will be on terms mutually agreed upon between the two parties. While the Ministry is inclined towards an extension it wants the PSC to be tweaked at least where financial benefits are concerned.
However, Cairn is clear that the mutually agreed terms cater to how the joint venture partners will classify reserves and means to increase production. “It does not mean changing the terms of the PSC, if the extension is for up to 10 years. The contractor is also eligible for subsequent indefinite extension on mutually agreed terms,” a Cairn official said.
Cairn has also been pushing the government to review the Rajasthan oil fields price formula. Said Cairn India MD & CEO Mayank Ashar: “The crude that we make is of very good quality. It can be sold at a much higher price in the market.”
When PSUs refiners were unable to take advantage of Rajasthan oil, Cairn was permitted to sell it to private domestic refiners, who made it a buyers market (using the price formula derived for PSUs).
(The writer was in Barmer at the invitation of Cairn India)