Cairn India Seeks Higher Price to Extract Oil from Rajasthan Block

Co expects govt to extend gas field reforms to more complex oil blocks
Cairn India is seeking higher price to extract more oil from its ageing Rajasthan block just like government has allowed a premium for gas fields in challenging regions like the deep sea.In order to incentivise gas production, the government has allowed contractors of undeveloped discoveries in difficult fields to charge a price linked to alternative fuels -coal, naphtha, liquefied natural gas, fuel oil –that would nearly double the price available to producers at current commodity rates.

“We are hopeful, going forward such reforms shall also be extended to other difficult fields including more complex geological formations like Tight Oil, Tight Gas and Enhanced Oil Recovery (EoR) projects,“ Mayank Ashar, the chief executive of Cairn India, said in a statement.

Cairn is trying to extend the life of its Rajasthan block with plans of “enhanced oil recovery“ techniques to sustain production, which requires additional investment.

In India, pricing of crude oil is market-linked while gas prices follow a formula based on international hub rates. Just to incentivise production from gas fields located in deep sea or high temperature high pressure areas, the government has allowed a favourable pricing linked to alternative fuels. But Cairn would like the government to also incentivise oil fields as well as those where extraction haven’t been naturally risky or difficult.

The government also unveiled a new hydrocarbon exploration policy last week, which Ashar said was a `quantum change’ in the upstream sector governance in the country. The new policy allows just one license for all forms of hydrocarbons as well as marketing and pricing freedom for gas.

“We hope the government will also extend this to existing producing acreages where similar hydrocarbon potential can be tapped into. Existing operators are mostsuited to develop both the unconventional and the conventional resources given their knowledge of the basins they are operating,“ Ashar said.

The government has also provided for an early and time-bound renewal of contracts for producing fields, which Ashar said will help investor better plan and invest.

“In wake of these developments, we are hopeful for an early resolution of PSC (production sharing contract) extension of Rajasthan block and realization of fair price for our crude,“ Ashar said. Cairn has been legally fighting the government over an early renewal of its license for Rajasthan block and for freedom to export its crude, arguing it 1will help it extract a fair price.

Source: Economic Times; 15 March 2016

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