Vedanta writes to PM on Cairn's oil exploration in Raj block

Vedanta Resources Chairman Anil Agarwal has sought Prime Minister Manmohan Singh's intervention so that his group firm Cairn India is allowed to explore oil in the prolific Rajasthan block.

Cairn India is looking to increase Rajasthan field output from current level of 175,000 barrels per day to 300,000 bpd (15 million tonnes per annum) and has made an application to the Oil Ministry seeking permission to explore within the ring-fenced development area that contains 25 oil and gas finds.

"The Rajasthan Production Sharing Contract (PSC) and the mining lease have enabling provisions that allow carrying on exploration in development area; however, we have been asked to obtain government approval," Agarwal, whose group had last year acquired Cairn India, wrote to Prime Minister on July 6.

The 3,111 square kilometre development area was ring- fenced from an exploration area more than three times its size after discoveries were made.

The Directorate General of Hydrocarbons (DGH) had taken a view that exploration is not permitted within an area that has been delineated after discoveries for production of hydrocarbons.

"As exploration is continuing in other producing blocks in the country, we request government approval for exploration in Rajasthan to enable us to achieve the full production potential," Agarwal wrote.

Cairn says the PSC defines a development area as one that not just includes a discovery or a group of discoveries but also "area of potential petroleum deposits".

The exploration it wants to undertake is additional to the investment it is making in developing MBA fields and 22 other oil and gas finds in the 3,111 sq km area delineated as development area.

All investments that Cairn, which holds 70 per cent interest in the Rajasthan block, makes in exploration and development is first recovered from revenues earned from sale of oil. Profits are split with the government only after the entire investment is recovered.

State-owned Oil and Natural Gas Corp (ONGC) holds the remaining 30 per cent stake in the Rajasthan block.

"We have also discovered gas in the Rajasthan block and we will put all our efforts to bring that into production as quickly as possible. However, this also requires further exploration work," Agarwal told the Prime Minister.

"Our exploration team and infrastructure is waiting eagerly to proceed with exploration activities at full pace. Each day lost in exploration cannot be recovered and since exploration is an integral part of production, we may be allowd to continue exploration activities in Rajasthan," he added.

Agarwal said 175,000 bpd of output from Rajasthan has reduced India's import bill by Rs 11,000 crore annually.

"At 300,000 bpd, we will meat almost 35 per cent of our country's total crude oil requirement; reduce annual import bill by over USD 10 billion (Rs 55,000 crore) and contribute annual revenue of Rs 30,000 crores to the Government," he said.

He said the government of India, government of Rajasthan and ONGC receive about 82 per cent of net revenues by way of profit petroleum, royalties, cess and tax, leaving 18 per cent for Cairn India.

"The PSC requires Cairn India to maximize the exploration and production potential from the block and your good office has emphasised and supported it," he added.

Cairn currently produces 150,000 bpd from Mangala and about 25,000 bpd from Bhagyam field. Bhagyam had an approved peak of 40,000 bpd, but the field has under-performed and there was a need to drill more wells.

The company has secured an approval to raise the peak output from Bhagyam to 60,000 bpd while that of Aishwariya, the third biggest oil field in the Rajasthan block, to 25,000 bpd from previously stated 10,000 bpd.

With the revised peak, the three fields should produce 235,000 bpd but this level is possibly only next year as Bhagyam has proved to be not as prolific as Mangala.