State-run ONGC and the Oil Ministry's technical arm, the DGH, have given Cairn India the go-ahead for commencement of production from the Bhagyam oilfield, the second-largest find in the 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 next month and it will reach the approved peak output of 40,000 bpd by April, sources privy to the development 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.
Sources said third party certification endorsing the production plan came in a few days, after which ONGC gave its go-ahead for commencement of production.
Prior to this, the Directorate General of Hydrocarbon (DGH) had approved the production plan, they said, adding that the FY'12 production rate, work programme and Budget for the Bhagyam field would now be put up to the block oversight committee for approval.
Management Committee approval of the same is expected in 7-10 days, after which Cairn would looking at beginning output from Bhagyam.
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.
The 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 the mining group, and Vedanta 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 Aishwariya field in the block can contribute 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 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%.
