ONGC supports Cairn plea for Rajasthan block’s term extension

New Delhi: As a shot in the arm for Cairn India, its partner Oil and Natural Gas Corp. (ONGC) has asked the government to extend the tenure of the prolific Rajasthan oil block by 10 years without any changes in terms and conditions.
Cairn, which holds 30% interest in the Rajasthan block, wants to retain the Rajasthan block beyond the contractual deadline of 2020. And for such an extension the nod of the state-owned firm, which is a licence of the block holding 30% interest, was necessary.
ONGC has agreed to the Cairn proposal and written to the oil ministry saying the licence term should be extended by 10 years on the existing terms and conditions, a top official said. Unlike in 2011, when it had given conditional approval for Cairn being acquired by Vedanta Group to resolve the royalty dispute, ONGC has not put any pre-condition this time.
After the ONGC nod, the ministry has now sought a view from the upstream regulator, the DGH for extension of the license term, he said. Cairn’s contractual term for exploring and producing oil and gas from the Rajasthan Block RJ-ON-90/2 expires in 2020 and the area is to return to the block licensee, ONGC.
The Anil Agarwal-group company, which wants the term of the block extended by a minimum 10 years, had in July 2014 formally written to ONGC on the issue, the official said. ONGC had previously told the ministry that the production sharing contract (PSC) can be extended beyond 2020 if all parties to the contract agree on mutually agreeable terms.
The official said the PSC states that the contractual term can be extended for 5 years if there remains oil to be produced and by 10 years if it is a gas bearing block. Cairn says it has a significant Raageshwari gas discovery in the block and so the term should be extended by 10 years, a contention that the state-owned ONGC has now backed.
The state-owned firm was to decide on terms on which it can agree on allowing Cairn to continue to operate the fields. ONGC as a licensee of the block, which produces about 160,000 barrels per day of oil, pays royalty to the government on not just its 30% stake but also on Cairn’s 70% interest.
Though the royalty is later cost recovered (as per the 2011 agreement between Cairn and ONGC), the company faces cash flow issues because of having to pay in advance. For agreeing to Cairn’s proposal, there was a view in ONGC that a condition be put that royalty will be shared by the partners in proportion to their shareholding. Also, it must seek a higher stake of 50%. The official said ONGC has not put any condition.
Source: Mint; 18 June 2015
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