Cairn India Forced to Cap Oil Production Due to Government Standoff

Strategic Insights -

Cairn India's plans to raise oil production from its Rajasthan fields have been delayed due to the government's standoff with the company's majority shareholder, Cairn Energy. The company had proposed to increase output by 20% to 150,000 barrels of crude oil per day (7.5 million tons) without any new investment, but the plan has not been approved by the state-owned Oil and Natural Gas Corp (ONGC) or the Directorate General of Hydrocarbons (DGH). As a result, Cairn India has been forced to cap oil production from its Mangala oilfield, the largest among the 15 discoveries in the Rajasthan block RJ-ON-90/1.

Key Takeaways:

  • Cairn India produces 125,000 barrels of crude oil per day (6.25 million tons a year) from the Mangala oilfield, but the company proposes to increase output to 150,000 barrels per day (7.5 million tons) without new investment.
  • The government is delaying approval for the plan due to its standoff with Cairn Energy, the majority shareholder of Cairn India.
  • The Oil Ministry has not approved the plan, citing the need forprior government consent, while Cairn Energy claims it is not contractually bound to seek approval for sale of shareholding in the Indian unit.
  • Industry watchers link the delay in government nod for raising output to the standoff between the oil ministry and Cairn Energy.
  • The standoff has resulted in about 30 lakh barrels of crude oil remaining inside the earth, while the nation spends precious foreign exchange on importing crude oil.
  • The Rajasthan block RJ-ON-90/1 is the largest among the 15 discoveries in the Rajasthan block, with 74 wells drilled but only 48 wells producing oil.

Statistics:

  • Cairn India produces 125,000 barrels of crude oil per day (6.25 million tons a year) from the Mangala oilfield.
  • The proposed increase in output is 20% to 150,000 barrels of crude oil per day (7.5 million tons).
  • The state-owned Oil and Gas Corporation (ONGC) holds a 30% interest in the Thar desert fields.
  • The Directorate General of Hydrocarbons (DGH) has not approved the plan for increased output.
  • Cairn Energy holds a 62.38% stake in Cairn India.
  • The proposed sale of Cairn Energy's stake in Cairn India to Vedanta Resources is worth up to $8.48 billion.
  • India meets 73% of its oil needs through imports.

Sources:

  • Cairn India (BSE:532792)
  • Oil and Natural Gas Corp (ONGC, BSE:500312)
  • Directorate General of Hydrocarbons (DGH)
  • Cairn Energy Plc
  • Vedanta Resources
  • PTI (Press Trust of India)