After months of delay, the government has given Cairn India the go-ahead for commencement of production from the Bhagyam oilfield, the second-largest find in the exploration firm's prolific Rajasthan block.
Cairn, which was recently taken over by London-based mining group Vedanta, will begin oil production from Bhagyam at the level of 20,000-25,000 barrels per day sometime this month and it will reach the approved peak output of 40,000 bpd later this year, an Oil Ministry official said.
The block oversight committee has approved production of 25,000 bpd from Bhagyam oilfield.
"The Management Committee (MC), which comprises representatives of the Oil Ministry and its technical advisor, the DGH, approved the start-up of production," he said.
Oil and Natural Gas Corp (ONGC), which holds a 30% stake in the Rajasthan block, had asked for third party certification to ascertain if Cairn's production plan will prudently exploit the reserves and if the surface facilities are capable of handling oil and water from the field.
The official said third party certification endorsing the production plan came a few weeks back, after which ONGC gave its go-ahead for commencement of production.
Prior to this, the Directorate General of Hydrocarbons (DGH) had approved the production plan, he said, adding that the FY12 production rate, work programme and Budget for the Bhagyam field have also been approved by the block oversight committee.
Currently, Mangala— the biggest of the 18 oil discoveries in the Thar desert block -- is producing 125,000 bpd, but it can produce 150,000 bpd within a few days from MC approval.
Bhagyam, too, has the potential for output to go up to 60,000 bpd, sources said, adding that the Rajasthan block would have an output of close to 175,000 bpd by the end of the current fiscal.
Cairn, which is the operator of the Rajasthan block with a 70% stake, was ready to pump oil from Bhagyam in October, but delayed the production in the absence of regulatory approvals.
So far, the company has committed more than $250 million toward development of Bhagyam against the approved Field Development Plan estimate of $470 million.
Approvals for the Bhagyam field were delayed because of a dispute over payment of royalty and oil cess with partner ONGC.
But now that UK's Cairn Energy— which sold 40% of its stake in the Indian unit to Vedanta— and the Anil Agarwal-led firm have agreed that Cairn India will share royalty and pay cess on its 70% share in the block, the approvals have started flowing.
Sources said the Rajasthan block has the potential to produce 300,000 bpd, a quarter more than the previously projected peak output.
Besides enhanced output of 150,000 bpd from Mangala and 60,000 bpd from Bhagyam, the expected contribution from the Aishwariya field has been revised upward to 25,000 bpd, compared to 10,000 bpd previously estimated.
The other fields in the block can produce 65,000 bpd. Sources said the Bhagyam field is ready to start production, while output from Aishwariya will begin later in 2012.
At present, the approved peak output from Rajasthan is just 175,000 bpd— made up of 125,000 bpd from Mangala, 40,000 bpd from Bhagyam and 10,000 bpd from Aishwariya.
For the new peak, the government needs to approve field development and investment plans along with the extension of exploration activities over the rest of the block.
Cairn India holds 70% participating interest in the block and state-owned Oil and Natural Gas Corp (ONGC) the remaining 30%.
