ONGC okays Cairn's revised plan for oilfield in Rajasthan
Saturday, 06 June 2009
07 June 2009;economictimes.indiatimes.com: NEW DELHI: The Board of Oil and Natural Gas Copr (ONGC) today approved the revised cost estimates for developing the nation’s most prolific on-land oilfield in Rajasthan and agreed to invest around $350 million more in the fields operated by Cairn India. The approval ends the uncertainty surrounding the development and the fields will now be put to production any time now. ONGC, which holds 30% interest in the fields, had previously withheld approval to Cairn’s revised field development plan as the state-run firm’s liability to pay royalty on the entire crude oil production, although it was only a 30% shareholder, had turned the project economically unviable for it. The board at its meeting approved the rise in cost of developing Mangala field in the Rajasthan block to $2.396 billion from $1.241 billion. Besides, the cost of smaller adjoining fields would also rise from USD 261 million to $275 million, a top company official said. ONGC will bear 30 per cent of this cost. The official, however, said that ONGC will continue to pursue with the government the reimbursement of the royalty it will pay on behalf of Cairn. There will be no change in the development cost of Bhagyam field, the second largest oilfield in the Rajasthan block, at $471 million. Also the cost of pipeline transporting the crude from Barmer district in Rajasthan to Gujarat cost would remain unchanged at $941 million. ONGC’s total exposure in the project will rise from $874.2 million to $ 1.22 billion, he said. The decision followed Petroleum Ministry pushing ONGC top management to approve the revised cost despite the project offering negative returns on investment. ONGC had previously approved its 30% share of investment at the original capital expenditure of $ 1.5 billion and operating expenditure of $ 1.43 billion for Mangala and adjoining smaller fields. But Cairn revised the capital cost to $ 2.67 billion and operating expenditure to $ 1.52 billion. The Bhagyam field cost would be $ 471 million $ 941 million being the cost of a pipeline to transport crude oil. “ONGC’s Net Present Value (the value today of anticipated future incomes and expenditures) with revised field investment plan works out to negative $ 1.435 billion and negative $ 1.471 billion at a crude price of $ 60 and 70 per barrel, respectively,” the official said. Negative NPV has been a result of ONGC being made liable to pay 20% royalty on the entire crude oil production while Cairn being exempt from payment of any levy. “(The) Petroleum Ministry today says that we signed the contract for the Rajasthan block fully knowing about the royalty liability. But the royalty at the time of signing of the production sharing contract was Rs 539.20 per tonne while it today comes to Rs 3,780 per tonne, considering a crude price of $ 60 per barrel,” he said.
