Cairn stuck with temporary operational extension for its Barmer oil & gas block

16 Sept 2020-Country’s most prolific Barmer oilfield operated by billionaire Anil Agarwal-led Cairn Oil and Gas has been reduced to operate on temporary permission from the government which has denied full 10-year extension to the company’s production sharing contract claiming higher share of profit petroleum.

After prolonged delays, the government had in October 2018 agreed to extend by 10 years the contract for Barmer fields after the expiry of the initial 25-year contract period on May 14, 2020.This extension, however, was conditional upon the company agreeing to increase the share of government’s profit (profit petroleum) from the oil and gas produced by 10 per cent.

Sources said that with the company challenging the government call for higher profit petroleum in courts and now also issuing a notice on arbitration disputing the claims, a formal extension of Barmer PSC has been denied to the company and it is operating on temporary extensions.

The 25-year PSC of the company expired on May 14, 2020 and since then the company has already got extensions ranging from 15 days to three months. The first three-month extension expired in mid-August after which a 15-day extension was given till the month end and now the latest extension is for one month ending September 30.

“The Rajasthan PSC allows extension on the same terms for a period of 10 years in case of commercial gas production and we are accordingly eligible for the extension. The block produces more than 20 per cent of India’s crude oil production and has the potential to double this over the next three years. This requires a reduction in fiscal levies and administrative support for timely approvals,” Cairn Oil and Gas said in a statement shared with IANS.

What has irked the company is the government changing the goalpost while committing on extensions. The latest being government claiming additional profit petroleum after re-allocating Rs 2,723 crore common cost between different fields in the block and disallowing Rs 1,508 crore cost on a pipeline, sources privy to the development said.

The company has already disputed the claims and issued a notice of arbitration.”We have referred a few matters to arbitration that we were not able to mutually resolve. We are hopeful to see some positive outcomes; we are committed to produce in this block and contribute significantly towards a self-reliant economy,” the company statement added.

Vedanta had earlier claimed that the delay in the extending PSC was preventing it from infusing further investment of over Rs 30,000 crore in the project and giving it the necessary lead time to plan production.

It had also contended that when none of the state-run companies could find oil in the block, it had invested around Rs 10,000 crore in exploration back in 1995 when the PSC was entered into. It had also claimed that the government has earned around Rs 80,000 crore from commercial production out of the area.

In its plea before the court earlier, Vedanta had said that the estimated recoverable assets in the block were about 1.2 billion barrels of oil equivalent, of which 466 million barrels are expected to be recovered beyond the current PSC period until 2030.

The extension will also allow the company to develop gas to the tune of about 3.5 mmscmd available in the fields. It was also producing natural gas from the block and supplying it to government companies.The Barmer block, otherwise known as the Rajasthan block, comprises Mangala, Bhagyam, Aishwariya and Raageshwari oil and gas fields.

It is the biggest onshore oil producing project in India and its current output hovers around 166,943 barrels of oil equivalent per day. While oil recovery from the block would deplete, Cairn would use the extended period to increase gas production.

The Directorate General of Hydrocarbons (DGH), the upstream nodal authority of the Oil Ministry, has given its approval for 10-year extension to Cairn PSC in 2018 subject to payment of additional profit petroleum. Cairn had challenged it before the Delhi High Court and the matter is sub-judice.