Cairn India plans to invest Rs 5,000 cr on Rajasthan block

NEW DELHI: Cairn IndiaBSE -0.58 % plans to invest Rs 5,000 crore on its Rajasthan oil fields in three years to 2016 under a new integrated development plan, even as it seeks extension of block contract beyond 2020.

The company also wants back all of the area it had contractually relinquished. 

Cairn CEO P Elango on April 12 wrote to the Oil Ministry seeking approval for an "over-arching integrated block development plan" instead of the current practice of government approving capital spending only for discoveries that are proved to be commercially viable for production. 

The company "proposes to make risk investment of Rs 5,000 crore during 2013-16 under integrated block development plan in the interest of optimising the potential of the block at the earliest," he wrote, adding, such an approval would cut lead time between discovery and production by half to 18 months. 

At present, the government reaps profit from an oil and gas field only after the operator has recovered all of its investment. Because of this, the government does not give blanket investment approvals and only gives nod for spending upon establishment of a discovery as commercially viable. 

Elango also suggested several amendments in the current practice of annual approvals for investments to be made and allowing of cost recovery, saying the "changes will help fast-tracking the exploration and development works in the block and bring us closer to the dream target of 300,000 barrels per day at the earliest". 

Separately, on April 5, he wrote to the ministry seeking extension of the Production Sharing Contract (PSC) of the Rajasthan block which is valid till May 14, 2020. Cairn believes "commercial production of oil from the block is set to go beyond 2040" and so, the PSC should be in the first instance be extended till 2030. 

On the same day, Elango in another letter sought more than two-thirds of the Rajasthan block area it had contractually relinquished. 

Contractually, companies are required to relinquish 25 per cent of the area in an oil and gas block at the end of first phase of exploration spanning three years. 

After another two years, when the second phase ends, 50 per cent of the area is to be given up and by the third phase of similar duration, only such area is allowed to be retained where discoveries are made. 

Rajasthan block RJ-ON-90/1 originally had all 11,108 square kilometres of area which was reduced to 3,111 sq km after the expiry of the three phases. 

Cairn now wants the relinquished area back saying "now that the prolific nature of the block is known, it is realised that limiting exploration work (to the area retained) can't but be a matter of gross injustice and none else than the nation at large suffers from it more than anyone else," he wrote.