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India CEO series: Cairn Oil & Gas says oil price recovery will support India's upstream push

Highlights

Company currently producing about 23%-25% of India's oil and gas output

Commences production from its tight oil project in Rajasthan

Sees normalization of tax structure as crucial for India's upstream growth

Singapore — The S&P Global Platts India CEO Series is a compilation of exclusive interviews with the leaders of top oil and gas companies in India. Get insights on how they are planning their growth roadmap at a time when energy transition is changing the industry's landscape, how companies are finding their way through the COVID-19 pandemic, as well as solutions needed to meet the country's insatiable appetite for energy.

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Cairn Oil & Gas, Vedanta Limited is hoping to double its share of India's oil and gas production over the next few years and is confident that a sustained price recovery will offer plentiful opportunities to invest in the upstream sector, the company's deputy CEO told S&P Global Platts.

Prachur Sah, deputy CEO, Cairn Oil & Gas, Vedanta Limited | Platts India CEO Series 2021
Prachur Sah, deputy CEO, Cairn Oil & Gas, Vedanta Limited

Prachur Sah, who is currently heading Cairn's operations, said the company had invested about $1.5 billion-$2 billion over the past couple of years to boost upstream production despite COVID-19 creating hurdles since last year, and would be looking to invest another $3 billion-$4 billion over the next three to four years in exploration and enhanced recovery technologies.

"Our vision is very clear. Currently, we are contributing about 23%-25% of India's oil and gas production, and we want to be contributing 50%," Sah said in an exclusive interview.

"We can do it by a combination of searching for new oil and gas, bringing discovered fields on stream and using advanced technologies to enhance recovery in matured fields," he added.

Cairn Oil & Gas is India's second-biggest upstream producer after state-owned Oil and Natural Gas Corp. A part of Vedanta Limited, its key producing assets are Rajasthan in the west, Cambay off the west coast and Ravva off the east coast.

Its flagship asset is the Rajasthan block, where it has made close to 40 discoveries. Mangala, Bhagyam and Aishwariya fields, the three major discoveries in the Rajasthan block, cumulatively have hydrocarbon reserves of approximately 2.2 billion boe, according to the company.

Rising production

Cairn Oil & Gas is currently producing about 170,000-175,000 boe/d of oil and gas, recovering from a level of 160,000-165,000 boe/d during the peak lockdown period of last year. About 30,000 boe/d of those numbers were coming from gas. Sah added that Cairn would be very soon producing 185,000-190,000 boe/d.

"But our key aim is to take those numbers to anywhere between 300,000 boe/d to 400,000 boe/d over the next few years. We can do it with the right investments and technologies, and with a little bit of support from the government," Sah said.

Cairn said this week it had commenced production from its tight oil project at Aishwariya Barmer Hills in Rajasthan. The start of production at its NA #01 facility is a first in Cairn's tight oil portfolio, and has the growth potential to contribute 20% of the company's production vision, Sah said.

"The tight oil project reflects our commitment to grow India's E&P sector through the deployment of advanced technologies and shows India's hydrocarbons potential. Cairn has plans in place to implement more advanced technologies like steam injection and reservoir modelling to enhance production from ageing fields," he said.

The project has been executed in collaboration with leading global oilfields services company Schlumberger.

Sah said that a sustained price recovery was crucial for upstream sector investment revival.

"Today, oil prices are at much healthier levels compared with what we saw last year, but upstream companies globally, not just in India, are still cautious about investing. If we see the current price levels sustaining over the next few months, that will be quite supportive of our upstream investments," he added.

Also in the Platts India CEO Series:

From oil to hydrogen, energy transition to have room for all: Shrikant Madhav Vaidya, IOC chairman

ExxonMobil eyes bigger footprint in India's energy transition journey: Bill Davies, ExxonMobil South Asia CEO

Shell sees opportunity for India to recover 'cleaner and faster': Nitin Prasad, Shell Companies - India CEO

India aims to cushion oil shock by doubling strategic petroleum reserves: H.P.S. Ahuja, ISPRL CEO

Retail gas, LNG by trucks, hydrogen figure in H-Energy's growth vision: Darshan Hiranandani, H-Energy CEO

Policy support

Sah said that for the upstream sector in India to be competitive, the government needs to bring in uniformity in the tax structure across pre-NELP, NELP and HELP policies. Currently, the pre-NELP blocks face a series of taxes -- such as cess, royalty tax and profit petroleum. NELP refers to the previous National Exploration Licensing Policy, while HELP refers to the more recent Hydrocarbon Exploration and Licensing Policy.

The pre-NELP blocks attract a 20% cess and 20% royalty on the oil price revenue realized by upstream companies. In addition, profit petroleum refers to a pre-determined share of the surplus petroleum output that operators have to pay as part of production-sharing agreements.

"Also, we are hoping that the government comes out with production-linked incentives that will support exploration and production, especially in the pre-NELP blocks, as monetization would be relatively quick," Sah said.

He added that in order to boost domestic upstream production and attract more private and international investment, policy support was needed to ensure that domestic producers were competing on a level playing field with international oil and gas suppliers.

"If an international oil producer feels that they are better off by selling oil and gas to India rather than investing and producing at a local level in India, they will not invest," Sah said.

He added that Cairn supported the petroleum ministry's vision of bringing oil and gas production under the goods and services tax, which would help producers to claim back input tax credits from the buyers on their sales -- taxes that they pay during the production process.

Sah said the company was also committed to reducing its own carbon footprint.

As the spread of COVID-19 across India continues to intensify, local communities are critically in need of resources and support. S&P Global has announced USD $1M in grants from the S&P Global Foundation to directly support India relief efforts, which will be allocated to Médecins Sans Frontières (MSF), Direct Relief, Nirmaan Organization and Project HOPE. These funds will support their efforts to strengthen healthcare centers and emergency response, as well as distribute critically needed oxygen supplies across India. Click here to learn more about the S&P Global Foundation.