Calcutta, Dec. 5: Oil explorer Cairn India’s oil discovery at Barmer, Rajasthan, is likely to make the company a more cost-efficient producer.

While its production will go up five times by 2010 when the Rajasthan oilfield reaches full scale, its operational cost will fall almost one third.

Cairn India, which holds the Indian assets of London Stock Exchange (LSE) listed Cairn Energy Plc, produces oil from Ravva offshore field in Andhra Pradesh and gas from Lakhsmi and Gauri fields from Cambay basin in Gujarat.

The company, which is taking its Indian operation public through an initial offer opening next week, is hoping to produce 150,000 barrels of oil per day from 2010.

Following this, Cairn’s share of oil will go up from 24,000 barrel of oil and oil equivalent per day (boepd) to 115,000 boepd, Tor McCaul, head of commercial & new business of Cairn India, said.

“However, the rapid ramp up in Rajasthan will not entail increase of fixed cost of operation to that extent,” he explained.

IOC move

Black Gold

Indian Oil Corporation (IOC) has sought heavy discounts from Cairn India Ltd for buying crude oil from Rajasthan to compensate for lower quality of crude.

As a consequence, Cairn’s operation cost will go down to $7 a barrel.

Cairn is also an established low cost producer in India, especially its efficient operation at Ravva. The company hopes to continue the low-cost model in Rajasthan as well.

With the strong international prices of crude oil and gas, Cairn received $3.72 per meter cubic feet (MCF) of gas and $67.01 a barrel for oil in the first half of this year.

The company is getting two onshore rigs for captive use in the Rajasthan reserve for which works will start from early 2007.

These rigs will enable the company to maintain the time schedule, increase efficiency and check cost.

Cairn is investing close to Rs 7,500 crore in Rajasthan and Ravva to reach its targeted oil and gas production.

Even as Rajasthan is predominantly an oil reserve, there is also gas from Raageshwari field. Even though the company plans to use the gas for captive use at present, there is also a possibility that it might also sale in future.

The total reserve estimate net to Cairn India is 472 million barrels oil equivalent (mmboe) out of which Mangla field — the biggest in Rajasthan block where it has 70 per cent share with rest with ONGC — has a reserve of 300 mmboe.

“We are willing to buy crude from cairn provided it is at the right price. We have several months back discussed the issue and still maintain the stand that unless they give us discount we cannot buy it,” a senior IOC official said.

The discounts being sought are in the range of $5-10 per barrel.

Cairn and its 30 per cent partner Oil and Natural Gas Corporation (ONGC) plan to get ONGC’s subsidiary Mangalore Refinery and Petrochemicals Ltd (MRPL) de-nominated as the official offtaker of crude oil found by cairn in Rajasthan and instead sell it to refiners.

“Earlier, we had planned to build a pipeline to Panipat refinery in neighbouring Haryana but the pipeline cost has to be compensated through discounts,” the official said.

Cairn’s Rajasthan crude had high wax content and needed specialised pipelines to transport it across 400 km.

Besides turning semi-solid at normal conditions, the crude has no LPG potential and naphtha yield is also very low (less than 2 per cent).

Cairn plans to bring Mangala, Aishwariya, Saraswati and Raageshwari fields in block RJ-on-90/1 on production by 2009.