Cairn India needs third-party reserve audit for 10-year licence extension

Cairn India will have to submit a third-party audit report of balance oil and gas reserves in its Rajasthan block to get a 10-year extension of licence beyond 2020.

Weeks after the Cabinet approved a policy for extension of licence of pre-bidding round of oil and gas fields, the oil ministry has issued a gazette notification listing the ones that will be eligible.

In all, 10 blocks -- six in Gujarat, two in Rajasthan, one in Assam and one extending across Assam-Mizoram-Manipur -- will be eligible for a 10-year extension. The single-most important block in the lot is RJ-ON-90/1 of Cairn in the Barmer district.

Any extension will be subject to the government's share of profit petroleum from the block being increased by 10 per cent, the notification said.

The government's share from Cairn's Rajasthan block is 50 per cent.

To avail the extension, the contractor or the company operating the block has to submit an application at least two years in advance of the expiry date of licence, the policy said.

In the case of Rajasthan block, Cairn will have to submit the application by 2018.

To get the extension, the "contractor should be able to demonstrate the availability of balance recoverable reserves through a third-party reserves audit report, to be submitted along with the application for extension", the notification said.

If the recoverable reserves of any development area requested for extension are more than 5 million barrels, the third-party reserve audit needs to be done by a DGH-approved consultant of international repute.

Also, the company will have to submit investment plan, called field development plan, for the proposed extension period.

Such a plan will have to include the initial oil or gas in place, balance recoverable reserves, future production profile and proposed work programme and the estimated expenditure for the proposed extension period.

"The past performance of the contractor should be satisfactory for the request of extension to be favourably considered," the notification said.

The past performance includes fulfilling at least 70 per cent of the commitment on drilling of wells as also creating a site restoration fund (SRF) and site restoration plan (SRP) as per the production sharing contract.

"In the event of failure to comply with any conditions, the government shall have the option to invite fresh bids for future development of the area and award the field to the most competitive bid," the policy said.

The government, it said, will also take into account pending arbitration while considering extension requests.

For the extension, the contractor has to provide bank guarantee equal to 10 per cent of the total estimated annual expenditure.