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AUG 27 2012

Cairn India ready to explore Shale potential in India

  • Economic Times, ET Bureau / Hyderabad
  • Created: Mon 27th AUG 2012

After a bleak run for a while, Cairn India's fortunes finally seem to be shining bright. A new aggressive management in Vedanta, a co-operative partner in ONGC and a steady thaw in its otherwise frosty relationship with the Indian government are propelling it to expand internationally and eye new frontiers such as shale acreages in India.

Company executives said Cairn India, which discovered India's biggest onshore field in Rajasthan, plans to bid for shale acreages once the bidding process starts by 2013.

"Yes, we are keen to bid for shale acreages in India, but it is too preliminary to discuss the nature of investments we will be putting in as we need to access a lot of data before we decide on a definite strategy," a senior Cairn India executive, who did not want to be identified, told ET.

"We are a lot more confident about our relationship with the government since the Vedanta takeover, especially as our partner ONGC is firmly on our side now and we are jointly tackling both regulatory and operational issues. Now we are actually writing joint letters to the regulators pushing for approvals, which was impossible earlier," he added.

Last year, Cairn, which operates the Rajasthan block and ONGC, its partner, were locked in a battle over royalty payments from the block, which had delayed London-listed Vedanta's takeover of the company.

The previous arrangement put the entire royalty burden on ONGC, giving the state-run firm a negative return on investments, and encouraging it to focus on changing the royalty agreement instead of further investment and production. Since Anil Agarwal-led Vedanta acquired the company and agreed to ONGC's demands, the relationship between the two companies has improved dramatically.

"Vedanta's aggressive approach in tackling regulatory issues and its deep knowledge and experience of working closely with various sections of the Indian government is also a major plus for us," said another senior Cairn India executive.

Industry officials say Vedanta chairman Anil Agarwal has written letters to the petroleum ministry and the PMO, seeking regulatory approvals for increasing production from the Rajasthan block to 300,000 barrels per day. The firm has already secured approval to raise output from the Rajasthan block to 1,75,000 barrels per day.

Discussing shale gas, the executive said, "The lack of cost-recovery provision could be seen as a deterrent as investments are typically very large for most exploration projects. Still, we are keen to evaluate the shale potential in India." Officials say the government is likely to abandon the system allowing companies to recover their cost before sharing profit.

Instead, it is likely to adopt the royalty and production-linked payment system for auction of shale acreages. Bidders would be asked to quote a percentage of output they are willing to share with the government at different production slabs. The draft policy suggests payment of ad valorem royalty at the prevailing rate for crude oil and natural gas for shale oil and gas, which would accrue to the state governments. It also proposes a production-linked payment to be made to the central government.

According to the proposed policy the contractor will also be exempted from payment of cess on shale oil. The government is also likely to allow 100% participation of foreign companies when it commences the first auction in early 2013. The petroleum ministry plans to hold consultations with various ministries like Law and Justice, Finance, Environment before finalising a model contract.

Tags

Rajasthan Finance Cairn India ONGC Vedanta Indus PMO

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