Thaindian News

Jaipur/Kolkata, Aug 20 (IBNS) Cairn India Ltd expects to hold costs at about $5 per barrel for crude oil produced from its Rajasthan fields, a top official said, helping the energy explorer reap strong revenues this fiscal year.

Cairn will start pumping crude from its Rajasthan fields later this month. Initial production will be 30,000 barrels per day (bpd) from the first train, and a second processing system of 50,000 bpd is expected to start by the end of the year.

“We intend to keep our costs low and see production cost at about $3.5 per barrel. Transportation cost will be another $1.5 (per barrel),” Chief Executive Officer Rahul Dhir said.

The commercial terms and pricing negotiations for the initial offtake of the Rajasthan crude have been concluded with IOC and MRPL, considering the last six months pricing it translates to a 10-15 percent discount to Brent.

Cairn India holds a 70 percent stake in RJ-ON-90/1 block in western India and state-run explorer Oil & Natural Gas Corp holds the balance.

Cairn is spending $1 billion to build a pipeline to transport the crude to coast of Gujarat. Dhir said it was expected to be operational by the fourth quarter.

Chairman Bill Gammell earlier this week told shareholders the company was targeting production of 125,000 bpd in the first half of 2010, and saw potential to increase peak production from the Rajasthan fields far above the development plan estimate of 175,000 bpd.

“There is sufficient new technology available and we will be using enhanced oil recovery techniques to exploit the full resource potential,” he said. He further added “The Rajasthan project is one of the biggest onshore oil and gas developments undertaken in India in recent years and the production from Rajasthan at the current envisaged rates has the potential to create significant value for all of our stakeholders. Both the Rajasthan Government and Government of India will get substantial revenues and savings will also be made on the country’s net oil import bill.”

Last month, Cairn India reported a 67 percent fall in June quarter profit to 454 million rupees, with gross production of operating units in the Cambay and Ravva fields down a sixth from a year ago to 59,461 barrels of oil equivalent per day. Ravva fields, on the East coast, will complete 15 years of production in October 2009 – which is much beyond its originally predicted economic life and has already generated billions of dollars of revenue for the authorities in India. The field direct operational expenses for the two producing blocks of Ravva and Cambay was USD 2.4 per barrel last year, one of the lowest operating costs in the world.

By 2011, Cairn and its joint venture partner will have invested up to 20,000 crore rupees (USD 4 Billion) on the development of the Mangala, Bhagyam and Aishwariya fields. At peak Barmer field of Cairn India will produce up to 8.75-million tonnes or 1,75,000 barrels per day (bpd). This will account for about 20 per cent of India’s crude production and is estimated to bring down the country’s oil import bill by about USD 6.8-billion, according to Goldman Sachs reports.

An Empowered Committee of Secretaries (ECS) has agreed to make Bhogat the delivery point in the period leading up to commissioning of a heated pipeline transporting crude from Barmer. It cleared the last hurdle for beginning oil production from Cairn India’s Rajasthan fields; the government on Monday approved shifting the delivery point from where state refiners IOC, HPCL and MRPL will take oil when output starts this month.