Govt should consider relief for oil companies, says Ajay Dixit, Cairn CEO

Ajay Dixit, in an interview, tells Shine Jacob about the Covid-19 impact on the industry, future plans and the need for government support.

Production of the Cairn Oil and Gas, a Vedanta group vertical, has dropped by 11 per cent following the lockdown, and some of its customers have invoked force majeure. Its Chief Executive Officer Ajay Dixit tells Shine Jacob about the Covid-19 impact on the industry, future plans and the need for government support. Edited excerpts:
 

What has been the impact of falling oil prices and the lockdown on firms like Cairn?
 

I would say there is significant impact of Covid-19 on the time schedule for Open Acreage Licensing Policy (OALP) blocks and completion of ongoing projects. The drop in oil prices is also having a significant impact on profitability of the company. Banks may also be reluctant to give loans at these prices.
 

The government should consider relief on royalty, cess, and profit petroleum because there has been heavy impact on upstream, specially pre-NELP exploration blocks. Major issue for producers like us with pre-Nelp exploration blocks is that we have to shell out 20 per cent each on cess and royalty and 50 per cent profit petroleum. With the operating expenses being barely met, it becomes difficult for the company to pay this high amount. Companies are getting hammered down heavily. It would take at least a couple of quarters for things to normalise. Until that the government should consider waiver, deferment or some reduction on royalty, cess, and profit petroleum. Apart from relief on profit petroleum, the government is already taking some steps on financial and banking sector like extending loan periods. The government should support so that this industry is able to stand up.
 

Have you invoked force majeure to get relief on OALP timeline?
 

We have sought an extension of OALP exploration timeline, because the lockdown has caused stoppage of all seismic surveys and related activities. In OALP, things are getting delayed. Normally, we start with seismic works. Most of the seismic equipment comes from China and they are now since December onwards.
 

Our production from Rajasthan is also down because customers have invoked force majeure. Some oil customers are taking at reduced rates due to demand issues, and maintenance activities. Gas customers have declared force majeure on partial volumes with corresponding impact on gas and associated oil production.
 

Is there a considerable decline in production?
 

Our production is definitely down. Instead of 180,000 barrels (boepd) that we were producing from Rajsthan early this year, it has come down to 160,000 barrels. Had this Covid impact not been there, we would have touched 210,000 barrels. We were expecting some projects to get completed. But they got delayed as material is stuck at ports in China and Italy, which should have reached our shores by the end of January. They are now quarantined and that has hit some of the projects that are going to be completed.
 

What would be the ideal oil price for Indian producers?
 

Even if you are on the best of your operating cost, you cannot sustain at this lower price regime. Our average operating cost comes to around $8-9 a barrel, in addition to this, development costs will be there. Anything below $45 a barrel is not appreciable for anybody in the industry. If you want a consistent growth in sector, right number would be around $55-60 a barrel or above that. If you want bare minimum survival and beat all obligations and do small amount of exploration, at least it should be $50 a barrel.
 

How are you managing the operations in Barmer amid lockdown?
 

We are managing with a very lean staff. We are continuing with the production as it is part of the essential services. Normally, 7,500-8000 people work in our acreage area of 3,500 sq km. We are managing with around 1200 staff now.
 

We are conducting awareness campaigns, distributing masks, and sanitizers among locals. In addition, Cairn is helping stuck-up labourers with food and also opened up some of our facilities for isolation centres. It is difficult to operate with a lean staff. Let me say they are living up to this. The construction part is stopped and minimum operations are maintained.
 

Do you think this lockdown should be further extended?
 

I think this is a tough call keeping in mind the economic and health and security point of view.