The oil ministry has decided to allow Cairn India to further explore Rajasthan oil fields, a decision that could raise the block’s output by over 70%. The decision will also intensify exploration activities in other producing fields operated by ONGC, GSPC and Reliance Industries, government officials said.
Cairn, which produces 175,000 barrels of oil every day from oilfields in Rajasthan, has been unable to raise its output because of an earlier interpretation of the production-sharing contract (PSC) by the oil ministry that limited exploration activities to the first seven years after a contract is awarded.
After examining Cairn’s proposal afresh – the proposal has been pending with the government for almost 18 months – oil minister Veerappa Moily came to the conclusion that the PSC does not prohibit exploration in producing fields, officials said requesting anonymity.
Oil ministry to allow Cairn India to further explore Rajasthan oilfields While taking the policy decision allowing further exploration, the ministry has also addressed concerns of the CAG that allowing more exploration activities would raise expenditure and proportionately reduce government’s share in profit, the official said.
India’s PSCs with energy firms allow explorers to first recover their expenditures from proceeds (earned by selling the oil and gas) before sharing profits with the government.
A CAG report that scrutinised the books of Reliance, Cairn and BG last year had criticised the oil ministry for being lenient to private firms while enforcing contracts.
Moily’s decision is based on several legal opinions and comments of the finance ministry and the Planning Commission, who opposed an earlier move of the ministry to “ring-fence” each discovery for the purpose of cost-recovery and not club them with producing fields.
Earlier this year, former oil minister Jaipal Reddy had circulated a draft cabinet note, proposing to ring fence discoveries made after the first seven years.
The implication of Reddy’s proposal was that in case of these discoveries, oil and gas could be extracted from fields only if they are independently viable.
The operator would only have been able to claim cost-recovery from individual finds rather than from the entire output of a block.
Immediately after Moily took over the oil ministry, Vedanta Resources chairman Anil Agarwal wrote a letter seeking permission to explore remaining potential resources in India’s biggest onland oilfield.
src: TOI