The government is mulling allowing Cairn India to export crude oil from the Rajasthan fields, having found buyers of even less than one-third of the company's planned peak output from the blocks.
The Government has found in IndianOil, Hindustan Petroleum and Mangalore Refinery buyers of only 2.4 million tonnes of the 8.75 million tonnes peak output planned by Cairn India by 2011, a Petroleum Ministry official said.
But the Government, which according to the Production Sharing Contract for the Rajasthan block is obliged to find buyers of the crude and ensure that the operator gets international price, has found purchasers of just half the 2009-10 volumes.
Cairn has said it will be ready to produce crude oil from its Rajasthan fields this month with output seen at 1.5 million tonnes in the fiscal 2009-10.
"IOC wants just 0.3 million tonnes while HPCL and MRPL would take 0.2 million tonnes each," he said. "Next fiscal when production rises to 3.5 million tonnes, IOC wants 1.5 million tonnes, HPCL 0.5 million tonnes and MRPL 0.4 million tonnes."
IOC is seeking a discount of $21 a barrel on internationally traded price of Brent crude while HPCL and MRPL want a $11 per barrel discount, impacting Government revenues from the project.
Naturally, allowing exports would not (only) help sell the entire output but also help discover fair value of the crude," he added.
The official said the Government was mulling an export option so that the Rajasthan crude gets a better price.
Oil regulator Directorate-General of Hydrocarbons has also written to the ministry saying the PSC contemplates exports in the event of the Government being unable to lift the entire quantity. It advocated providing marketing freedom including exports to determine the fair value of the crude oil.
Cairn, on the other, has not made up its mind. A company spokesperson said: "We are in discussions with the Government of India on crude nominations and we expect that these discussions will be concluded in time for our planned first oil production in third quarter of 2009 (calendar year)."
The focus for the company currently was to start oil production from Mangala, the biggest oilfield in the Rajasthan block. "We are targeting 30,000 bpd (1.5 million tonnes a year) of crude oil production from Mangala by July-September quarter. Output will rise to 50,000 bpd (2.5 million tonnes) by Q4," he said.
Reliance Industries and Essar Oil have expressed interest in buying Cairn crude. RIL wants 30,000-60,000 bpd of Cairn crude for each of its two refineries at Jamnagar in Gujarat while Essar Oil has applied for 30,000 bpd this year and 1,20,000 bpd by 2011 when it expands its Vadinar refinery in Jamnagar.
The Mangala field is expected to produce 30,000 bpd by the second quarter of 2009-10. Production hit a plateau of 125,000 bpd during H1 of 2010.
Besides the 125,000 bpd of Mangala, the adjacent Bhagyam field would produce 40,000 bpd and Aishwariya another 20,000 bpd. The peak of 175,000 bpd or 8.75 million tonnes would be reached in 2011.
Cairn is investing $850 million in a processing facility and another $940 million in a heated oil pipeline from the fields to the port of Viramgam in Gujarat.
Cairn India, the subsidiary of UK-based Cairn Energy, holds a 70 per cent stake and is the operator of the Rajasthan block. ONGC is its partner with a 30 per cent stake.
