Cairn Oil and Gas hopes to recover around $4-billion investment

Cairn Oil and Gas wants the government to incentivise enhanced recovery techniques in the oil and gas industry by bringing down levies to 40 per cent from the current 70 per cent. 

A unit of Anil Agarwal-controlled Vedanta group, it is hoping to recover around $4 billion of its investment once the government approves tweaks to the enhanced recovery (ER) policy that was floated in 2018.

“The current contribution is around 70 per cent of revenue (from oil and gas production that comes after ER is deployed) as levies make many projects unviable. The idea is how we can bring it down to the level of 40 per cent. We have a lot of projects lined up that can get investment once these things get cleared up,” Prachur Sah, deputy chief executive officer (deputy CEO) of Cairn Oil and Gas told Business Standard. Sah was part of an industry delegation that met PM Narendra Modi this week. 

While the intention of the ER policy was to boost domestic oil and gas production from ageing fields, it has not yielded the desired results. Production from oil and gas fields in India has been on a decline and the upstream sector is lobbying for a more relaxed fiscal regime. Under the ER policy, the government offered incentives to adopt the improved recovery, and unconventional hydrocarbon production methods.

“We have given our suggestions on minor policy tweaks that are needed in the ER policy with respect to pre-New Exploration Licencing Policy (NELP) blocks. I think the approvals are in the last stages,” he said. The pre-NELP blocks were awarded under the nomination regime and continue to command a large chunk of India’s domestic oil and gas production.

The Mangala, Bhagyam & Aishwariya fields, where Cairn Oil and Gas is a partner with ONGC, is one such field that annually contributes around 30 per cent of India’s total domestic crude oil production.

During his meeting with industry leaders, the PM had said the country was looking to maximise production and not revenue from domestic oil and gas blocks. “In the Rajasthan block, an investment of close to $12 billion has been made by Cairn Oil and Gas since inception. This includes investment on exploration and production combined. If these minor changes are done and the tax structure is fixed, we are talking about at least $3-4 billion that will be recovered by Cairn Oil and Gas right away. This amount can be redeployed for facilitating further oil and gas production,” Sah said.

Highlighting the pain point in the existing policy, Sah said, “We have been asking for making enhanced oil recovery viable. We are working with the government on how to make the levy structure right.”

OALP blocks with Cairn

Cairn Oil and Gas is also the largest player in the open acreage licensing policy (OALP) bid rounds. It holds 51 blocks after three rounds of bids. But exploration activities in these blocks were hit due the Covid-19 pandemic. Some exploration companies also sought relaxations in the minimum work program (MWP) commitment and in adhering to strict timelines for starting production from OALP blocks.

Sah said, “Cairn Oil and Gas did not ask for reduction on MWP commitment. What we did ask is an extension of the time period relaxation for the exploration phase in light of Covid-related disruptions.”

“We believe that the one-year relaxation, which was given, can be further extended, because we want to complete the committed programme. On the work programme, we did not want it to be reduced. We said that if we bring a new technology, that can be a substitute. For example, in seismic activities, we have done a lot of aerial surveys. If that serves the same purpose, then it can help us in monetising the blocks. It’s not something we are saying as a legal right, but suggesting from a technology point of view, because it enables us to monetise the blocks faster.”

Sah said Cairn Oil and Gas drilled wells in six blocks and announced discoveries in Rajasthan, and Cambay.