Cairn India is positive that its gas find would be commercially viable and that they would be able to supply piped gas to the Gujarat market by laying an additional pipeline

In the eighth round  of NELP (New Exploration Licensing Policy) Cairn India won 1988 sqkm block in 2010 (KG-OSN-2009/3 block) but work could not start due to certain objections raised by the Ministry of Defence.  This block is next to the prolific Ravva fields and hence Cairn India had shown great interest to explore the same. Thankfully, now that the Ministry of Defence has withdrawn their objections, in the next couple of months, Cairn plans to explore by seismic shots (or imaging the earth below by sending shock waves and capturing reflections).

This has been made possible after the Cabinet Committee for Investments cleared Cairn to go ahead with its plan in one part of the block, of about 60% of the area, since the Ministry of Defence cleared the same.  Cairn India is optimistic to find hydrocarbon resources there, and expects to have gas results in the first quarter of 2015.

The upward revision of gas prices from 1st April was withheld due to the instructions received from the Election Commission, but it is generally felt, at least by the petroleum industry that this increased price would make it viable for contractors to explore for such hydrocarbon resources.  

Because of the prospect of increased price, which would make exploration worthwhile, Cairn has turned its attention to Rajasthan south block and in Rageshwari fields.  The Vedanta group is already producing 200,000 barrels (boepd) and they are stepping up efforts to find gas in this area. Drilling is in progress, and, as mentioned above,Cairn expect to have positive gas results in the early part of 2015.  Initial estimates show that the gas reserves could be higher than Cambay Basin.

Cairn India is positive that its gas find would be commercially viable and that they would be able to supply piped gas to the Gujarat market by laying an additional pipeline, to the existing Barmer-Boghat (Gujarat) pipeline. Once the final assessment is made, all that they would need to do is to lay this additional line!

At the moment, this Barmer-Boghat pipeline is designed to carry 1.75 lakh barrels a day, but it is  actually touching close to 2 lakh barrels and  we feel that this could even be increased to 3 lakh barrels by setting up more booster pumps, till possibly the second pipeline is laid.

At the moment, Cairn India has a production sharing contract valid till May 2020, which can get a five-year extension on general merit.  Also, a 10-year extension may be allowed if gas availability is beyond the original 2020 expiry date. It appears that the Barmer block has the commercial potential to go beyond 2040. Cairn India have already sought a ten-year extension.

In the meantime, Anil Agarwal, Vedanta group chairman is reported to have stated that "the government should  consider the Barmer oilfield contract in line with those signed under the hydrocarbon auction rounds under which the contracts are valid till the life of the field."  Such a move will enable the contractor to work most earnestly to get the best out of the fields and
invest enormous sums to achieve the end results.

It is in this context the new proposals from the Petroleum Ministry, when approved by the Cabinet, would enable the contractors to carry on the exploration work without any hassles and bureaucratic hinderances.

As matter of interest for our readers, it may be recalled that Cairn had announced a buy back plan to secure 17.09 crore shares (or 8.9% of its equity) at a price of Rs335, because of the enormous cash reserves of more than $3 billion it has and set aside Rs5,725 crores for this purpose.This proposal had to be called off because of the dispute with the Income Tax Department, which, as we write, is still in process.

Meantime, Cairn India prices in the stock market has reached Rs360 and the chances for a good dividend are bright, once again.

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)