Cairn-ONGC moots $700-m proposal to drill Barmer gas

Cairn-ONGC moots $700-m proposal to drill Barmer gas

Private explorer Cairn India, along with its joint venture partner, state-run ONGC, has put forward a $700-million plan to develop and produce gas reserves at the Raageshwari fields in the prolific Barmer block in Rajasthan. The Management Committee, comprising petroleum ministry, Directorate General of Hydrocarbons (DGH) and the explorers that oversees operations of the block, is likely to discuss the proposal this week.

This assumes significance as volumes of commercially produced gas from the block would determine whether Cairn India gets a renewed lease for the asset for 10 or five years. So far, the DGH has held the view that Barmer is primarily oil producing and, hence, contract can be extended only for five years. Cairn India’s contract for the Barmer block in Rajasthan – RJ-ON-90/1 – is valid till May 14, 2020. The Anil Agarwal-promoted explorer wanted the contract to be extended till oil flows or at least by another 10 years till 2030.

Of the $700-million programme, nearly $245 million would be spent for drilling 35-37 wells and another $315 million will be utilised for setting up surface facilities, sources told FE. Recently, the ONGC board, which holds 30% stake in the block, approved the proposal to develop Raageshwari Deep Gas field.

The gas output from Raageshwari fields in the Barmer block is pegged to go up to 2.80 million metric standard cubic meter per day (mmscmd) by 2017 from nearly 0.25 mscmd now. It is yet to be seen whether the latest field development plan (FDP), to be approved by Management Committee, would qualify the block to get a 10-year extension based on gas potential.

“Management continues to guide for doubling of gas production from current 8 million standard cubic feet of gas per day (mscfd) to 16 mscfd by end-FY15 and further likely increase to 100 mmscfd (90% of this will be sold) by FY17 subject to regulatory approvals. Raaseshwari in-place resource estimate stands at 1-3 trillion cubic feet (tcf), with recovery factor estimated at about 50%,” said a report from brokerage firm Motilal Oswal.

The Barmer block in Rajasthan, the biggest onshore crude oil fields contributing nearly 25% of country’s production, touched the peak output of 200,000 barrels of oil per day (bopd) in FY14 but has gradually dropped from the high levels.

Analysts expect Cairn India’s earnings to be subdued since production is flat or decline marginally, while profit share of government keeps going up. Cairn India reported Ebitda of R13,900 crore on revenues of R18,800 crore of revenues in FY14. It reported net profit of R12,400 in FY14, roughly 3% higher than R12,100 crore in FY13.

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