Cairn India, the Indian arm of the British-based company, is set to begin production from its Barmer block find in Rajasthan, at $5 a barrel.
The price of crude oil is linked to the Nigerian Bonny Light variety, which roughly works out to be a 10-15 per cent discount to the last six-month average of Brent crude. “Two big drivers for value are volume and cost for us. We continue to target $3.50 per barrel as lifting cost and $1.50 per barrel for transportation cost. So all in, the delivery cost we are targeting is $5 per barrel, which makes this project very competitive from the cost point of view,” Rahul Dhir, CEO, Cairn India, said at the annual general meeting of the company in Mumbai.
“We are ready to produce immediately. Commercial agreements have been done. But we cannot put a precise production date,” Dhir added. Cairn also produces crude oil from its Ravva field off the coast of Andhra Pradesh at around $2 a barrel.
Cairn’s Mangala Processing Terminal in Barmer is ready to start production with a capacity of 30,000 barrels a day of oil, which will be increased by a further 100,000 barrels per day in the first half of 2010. Production from Rajasthan could eventually exceed 175,000 barrels a day.
“We believe there is potential to extend and also enhance peak plateau production from the resource base of the Rajasthan fields above the level of 175,000 bpd,” said Bill Gammell, non-executive chairman of Cairn India, in a speech to shareholders during the company's annual general meeting.
The company will transport oil in trucks till Indian Oil Corporation's pipeline network and to the Gujarat coast for being shipped to Mangalore Refinery and Petrochemicals (MRPL). This arrangement will continue till the crude oil pipeline is completed by December 2009.
However, extreme weather in Gujarat, and monsoon rains, and heat in Rajasthan could "pose schedule risks" to the company's target of reaching the second phase of oil production and constructing the pipeline, Gammell added.
Besides Indian Oil and MRPL, the company has also got approval from the government to sell crude to the state-run Hindustan Petroleum Corporation. "The commercial terms and pricing negotiations for the initial offtake of the Rajasthan crude have been concluded with IOC and MRPL and the company is in the advanced stage of concluding the crude oil sales agreements,” Gammell added.
Shares of the company were up 0.91 per cent at Rs 238.95 on the Bombay Stock Exchange.
