India's Cairn Oil and Gas will continue to invest billions of dollars in exploration in an effort to double its share in the country's oil and gas production in the coming years but with a lower carbon footprint, as it strongly believes that fossil fuels will remain an important part of the energy mix for decades, the company's new chief executive officer told S&P Global Commodity Insights.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
Cairn, part of Vedanta Resources, has set a target to raise its share of domestic production to 50% from the current 25%, as the upstream investment climate had improved. Many of the policies have also been simplified, although some still need to be addressed, the company's CEO Nick Walker said in an interview.
"It is important for the world to transition to lower carbon energy sources as quickly as possible. But it is also important to balance this objective with both energy security and providing plentiful affordable energy to support economic growth and prosperity. The reality is that the energy transition will take time and so, fossil fuels will be an important part of the energy mix for decades to come," Walker said.
He added that it is also important for the industry to step up to deliver the incremental energy requirements with lower carbon emissions. The government, therefore, needs to ensure a conducive environment to continue to attract investment to the oil and gas sector to meet societal energy needs.
Platts Analytics, part of S&P Global Commodity Insights, expects Dated Brent prices in the year's first half to average around $80/b before recovering to $85-$90/b in H2.
"There remains significant growth opportunities in our major Rajasthan block. Although it has been in production for 14 years, to date, we've only produced 12% of hydrocarbons in-place," Walker said.
"A lot of this remaining oil is in more difficult reservoirs and unconventional shale targets. However, through the application of the latest technology, we believe we can economically unlock many of these opportunities and we will be pushing this forward at pace," he added.
The Rajasthan block is one of India's largest producing onshore oil block. Recently, Cairn won eight oil blocks and one coal bed methane block under the Discovered Small Field Round 3 bids, taking the company's total assets in the country to 62.
Cairn's current total production capacity stands at 147,000 b/d of oil equivalent, with the Rajasthan block contributing 120,000 boe/d, or nearly 82% of total production. Cumulatively, the block has produced over 700 million boe in the last decade.
Cairn said in October 2022 that it signed a 10-year production sharing contract for its oil and gas block exploration works in the western state of Rajasthan with the Indian petroleum and natural gas ministry. The contract extension would be applicable from May 2020.
Accordingly to S&P Global, the Rajasthan assets are the company's main cash cow and positions the company to remain highly liquids-weighted as compared to a general E&P-wide push towards gas-weighted assets. Cairn's portfolio is an attractive dollar hedge for the government.
Walker said Cairn had built a large exploration portfolio across multiple oil and gas basins in India, boosting its exploration success prospects over the next few years.
"In the near term, India is expected to witness a continued increase in demand for oil and gas, driven by factors such as population growth, urbanization, and economic development. To meet this demand, the country will need to invest in exploration and production of new resources, as well as in the infrastructure required to support the transportation and distribution of these resources," he added.
Untapped upstream potential
India has huge untapped oil and gas resource potential in existing basins where yet-to-be-found resources are estimated at 30 billion boe. If one includes frontier unexplored areas this figure could be significantly greater. To realize this, a crucial component would be to incentivize current producing blocks to ramp up production through deployment of enhanced recovery techniques, Walker said.
"Thanks to forward-looking policies, such as the introduction of hydrocarbon exploration and licensing policy, many procedural complexities had been sorted out in the upstream oil and gas business," Walker said.
As the government aims for self-sufficiency and reducing energy imports to 50% by 2030, attracting correct investments and foreign players will be important.
"The government has done well to reduce the tax burden, introduce production-linked incentive schemes and more. We need to further expand the ease of doing business in the oil and gas sector. Along with the exploration, production processes too need simplification and reduction in levies and taxes," Walker said.
He said Cairn was aiming to implement some of the latest technologies deployed across its fields that would help in achieving its goals. Highlighting some of its key developments, Walker said Cairn now has the world's longest continuously heated and insulated pipeline, as well as the biggest enhanced oil recovery polymer flood project.
"Technology is a thorough integrator and driver at Cairn, and we remain committed to bringing the best of global technologies to India's upstream sector," Walker said.