Cairn India has ruled out giving any discounts over the "fair value" of the crude oil it plans to start producing from its Rajasthan fields in the second half of 2009.
"Pricing has to be based on the value of crude, which is driven by the chemistry of crude. Rajasthan crude is low sulphur, medium grade crude and therefore should be priced accordingly," Cairn India CEO Rahul Dhir has said here.
Potential buyers such as state-run Indian Oil Corp (IOC) have demanded heavy discounts for buying the "waxy crude" that turns solid at normal temperature.
"Pricing (of the crude) has to be very precise (to the value or products it turns out). It is not possible (for us) to offer (it) at discount or below its fair value," Dhir has said.
Cairn's Rajasthan crude is a sweet (low sulphur), waxy crude with medium API gravity of 27.41 and its yield produces straight run diesel which meets Euro II quality standards without any further hydro treatment. The Vacuum Gas Oil (feed for secondary units) is of excellent quality with high paraffin contain.
He has said Rajasthan crude was close in characteristics to Indonesian Duri crude oil but the benchmarking exercise would take place once the government appoints refineries that would buy its crude. Duri commands a price close to that of low-sulphur Bonny Light crude oil of Nigeria.
Cairn and its 30 per cent state-run partner Oil and Natural Gas Corp are laying a heated pipeline to transport the crude oil from Barmer in Rajasthan to Gujarat coast.
"The pipeline will be done in time for the oil production that is to start in the second half of 2009," he has added.
IOC has sought about two million tonnes of Rajasthan crude for processing at its Panipat refinery in Haryana and Koyali refinery in Gujarat.
Government officials, however, said the price of crude is to be decided according to the contract for the field that says that it should be priced at "appropriate basket of crude oils" actively traded and quoted by Platts.
Cairn plans to produce 8.75 million tonnes a year of peak crude, a level that would be reached in a years time from beginning output, Dhir has said.
ONGCs subsidiary Mangalore Refinery is the current government nominee for offtake of Rajasthan crude but it has expressed inability to take more than 1-1.5 million tonnes and for the rest Cairn is looking at other refiners.
IOC has disagreed with Cairn's classification of the crude and feels it was closest to Maya crude of Mexico or Ratawi of Neutral Zone in the Gulf region, he has said. These crudes command a discount of USD 15-18 per barrel to Bonny Light price.
Dhir has said the company was investing $1.8 billion in Rajasthan fields in the two years ending December 2009. Three processing trains of 50,000 bpd each would be built, two of which would come up by the end of the year.
Prior to this investment, Cairn had invested $1 billion in the Rajasthan block, where 25 oil and gas discoveries have been made so far.
