The oil field development agreement between Baker Hughes (then Baker Hughes, a GE Company (BHGE)) and Cairn Oil and Gas (a subsidiary of Vedanta Limited) seems to be in troubled waters, if the buzz in the industry is to be believed.

Though the company maintains that only a portion of the work is suspended and not the entire contract. Talks going around is that the deal between these two companies has fallen apart after Cairn Oil and Gas pulled back on new exploration activities.

Project details

This oilfield development contract was for drilling approximately 300 new wells and to deploy a chemical enhanced oil recovery programme aimed at increasing crude oil production from Rajasthan. The agreement announced in August 2018 said that BHGE will provide an integrated scope of oilfield services and equipment, delivered in phases over 24 months to unlock the ‘significant untapped reserves’ at the Mangala, Bhagyam and Aishwariya (MBA) fields.

This was the largest integrated project for BHGE in India and was anticipated to begin in the second half of 2018 and continue for three years.

The liability to pay for rig hiring services fell on Baker Hughes (BH). Despite no utility of the rigs, BH would end up paying around 50 to 60 per cent of the rig hiring costs. This is what led to the dispute arising between these two companies.

Current status

When asked a Cairn Oil and Gas official told BusinessLine, “Cairn has not invoked force majeure. The contract is not cancelled - a portion of the work is suspended.”

According to company officials, Cairn Oil and Gas is operating at one-seventh of its manpower during the Covid-19 lockdowns. The focus is to ensure continuing production from existing fields. Crude oil production by the company is at around 150 thousand barrels of oil equivalent per day (kboepd), down from 180 kboepd before the lockdowns.

Plans

Company officials also said that it has been implementing enhanced oil recovery techniques to boost production from its Rajasthan fields. In the next step the company had planned was implementation of chemical or Alkaline Surfactant Polymer (ASP) enhanced oil recovery. This was aimed at increasing the recovery factor from 36 per cent to over 50 per cent. This meant that the company would be able to extract more than half the crude oil present in the Mangla, Bhagyam and Aishwarya fields. But it would have raised the average cost of production in Barmer from $ 8 a barrel to $ 15 a barrel.

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