Cairn CEO suggests easing of rules, levy to raise investment and output

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Vedanta Cairn is open to bringing in partners for few oil and gas blocks it has got under the Open Acreage Licensing Policy (OALP). 

The company has all clearances in place for 11 of the 47 blocks it had got under the previous bidding round under OALP. 

Ajay Dixit, its new CEO for oil and gas, says the central government should cut the cess levy by half, to encourage domestic production. The rate is now 20 per cent of the value of the oil. 

“This should be halved, at least. The government should take it from the revenue and not up-front. Then, this not only improves the viability of some of the technologies that should be applied but improves the cash requirement. The government will get its share, one way or the other,” Dixit told Business Standard

Cairn, oil and gas arm of the Vedanta group, is producing at a cost of close to $8 a barrel. “The rest is a build-up of cess, royalties and profit petroleum share of the government,” he added.

The reduction in tax could bring high investment to the sector, he says. “Oil and gas has changed the fortune of many countries and could also change here. A focused working group will help in getting this sorted.”

Cairn would be forming clusters of six to eight blocks won under OALP, go on an overall turnkey basis to the discovery stage and then move to production. “We are in the advanced stage of finalising our contracts for these clusters. We will quickly proceed with simultaneous operations,” said the CEO. 

The engagements could vary from partnerships to only contracting. “If there are companies which have good experience in difficult blocks, we don’t want to re-invent the wheel. Our aim is to increase production. We also don’t mind partnering.” The latter could happen before or after discovery, he explains.

The industry's best, he says, have shown interest. It could be eight contracts — after the award of blocks under the current OALP round, there would be 51 blocks. The clusters would depend on proximity. “We could split some of the difficult ones which might take more time into three or four blocks, forming one cluster." 

Around 10 international players have shown interest and their bids are under evaluation and techno-commercial discussion. For the first set of 11 blocks, clearances have been received. 

Dixit said domestic production could be increased by hastening the exploration of OALP blocks, though the operators would have to go through the exploration cycle and then development, followed by actual production. 

From the current basins, the latest (and expensive) technologies can be used. “But, the viability, based on what is the cost of production plus cess, is not making production attractive. If we are in a position to address this topic, then this could be something which would boost domestic production. And, this is not mainly for Cairn but applicable for the entire industry.”

Dixit also flagged the issue of current lease agreements. Since the government had realised the stress and the difficulty that companies go through to come to the stage of final production, it amended earlier rules while coming up with the OALP regime, he noted. “It could be good that the same (approach) be extended from the operational point of view. We are not saying in terms of changing the numbers but stress can be reduced,” he said, on the need for attention to ease of doing business. 

Cairn expects $500-800 million of investment for 41 blocks during the exploration phase of three years. Close to another $3 billion would be invested in the current blocks for raising production. The current output is close to 190,000 barrels a day, rising to 270,000 barrels at the end of this financial year. 

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