The Hindu Business Line : Cairn hopes to resolve Rajasthan crude evacuation issue

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New Delhi Jan. 29 The Edinburgh-based oil explorer Cairn Energy Plc, parent of Cairn India Ltd, on Monday said that it was confident of reaching an agreement with its Indian partner ONGC on construction of a pipeline to deliver oil from its Rajasthan fields in the first half of this year (H1 2007). This statement helped propel Cairn India's share price to an intra-day high of Rs 155 on the BSE. Cairn India shares which opened at Rs 147.95 today last traded at Rs 150.05.

The parent companysaid, "in order to ensure efficient offtake of the Rajasthan crude, Cairn India has been involved in ongoing and detailed discussions with the Indian Government, ONGC and third parties. The purpose of these discussions was to ensure proper integration and control of both the upstream and the midstream in order to maximise the distribution and marketing options. Discussions are progressing and Cairn believes that this issue will be resolved in order to meet the schedule to achieve first oil in 2009."

FEED contract

"Subject to the outcome of discussions with the Government of India, as to its role in the midstream project, Cairn India is ready to award the front end engineering design (FEED) contract for the first phase of the preferred pipeline alternative," the statement said.

Concerns about the pipeline have weighed on the company's share price, with some investors fearing a delay to field start-up. The statement also said that the group's total oil and gas production fell in 2006 to 24,500 barrels of oil equivalent per day (boepd) from 28,300 boepd in 2005. Sir Bill Gammell, Chief Executive of Cairn, said "the successful completion of the IPO has created an autonomous business and management team for our assets in India as well as realising significant value for our existing shareholders... good progress has been made by Cairn India in determining offtake arrangements for Rajasthan crude and remain confident that the first oil target of 2009 from Mangala can be achieved."

Oil discovery

The company has made an additional oil discovery at the Shakti North East prospect in Rajasthan, it said. Shakti North East 1, which is located 6 km north east of the Shakti-1 discovery, encountered approximately six metres of net pay of oil with an API of 13-15 degrees. A cased hole test on Shakti North East-1 confirmed a flow of 83 bopd. Maintaining that the discovery may not be at the same scale as Mangala fields, a company official said, "The aim is to add value to our assets."

As regards the quality of the crude, indications are that it would be heavier than what the company would be getting from Rajasthan, which is an average of 29 API. The company proposes to submit field development plans for Bhagyam and Shakti to the Government of India in first quarter of 2007.

The statement also said that the ceiling price under each of the Ravva gas sales contracts have been increased following renegotiations with the buyer, GAIL (India) Ltd.

The ceiling price for the associated gas has increased by 18 per cent and the ceiling price for non-associate gas has been increased by 30 per cent.

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