ONGC may hike stake in Rajasthan block for extended operation

17 Jun 2014


State-owned Oil and Natural Gas Corporation Ltd (ONGC) may insist on an increase in its equity stake in prolific Rajasthan oil fields as a precondition for agreeing to an extension of Cairn India's operating licence beyond the contractual period.

ONGC currently holds a 30-per cent stake in the block while the Anil Agarwal-group firm Cairn India holds the remaining 70 per cent stake. ONGC as the block licensee pays the entire royalty for the block.

Cairn India's contractual term for exploring and producing oil from the Rajasthan Block RJ-ON-90/2 expires in 2020 and the block is to be returned to the licensee, ONGC after that.

ONGC is reported to have told the oil ministry that the production sharing contract (PSC) can be extended beyond 2020 if all parties to the contract agree on mutually agreeable terms.

"We are internally discussing Cairn's request for extending the PSC by at least 10 years. As a licensee, we have our concerns on royalty which would be like to be addressed at the time of extension," a top ONGC official said.

Crude oil production in the Rajastan block touched 200,000 barrels per day in March.

Though the royalty is later cost recovered, the company faces cash flow issues because of the payment.

"There is a thought within the company that we should as a condition for agreeing to extending PSC, insist on royalty being shared by the partners in proportion to their shareholding," he said. "Raising stake to 50 per cent is also being discussed as a condition."

The Rajasthan PSC provides for ONGC becoming the owner of all facilities once their cost is recovered from sale of crude oil.

The cost of Mangala, Bhagyam and Aishwariya oil field facilities in the block as well as the heated pipeline that carries the crude from the field to Gujarat refiners will be recovered much before the current term of PSC ends in 2020.

"Naturally, if we are the owners of the facilities and are saddled with royalty burden, we would look for addressing these before the PSC is extended," the official said.

The Rajasthan Block RJ-ON-90/2 was awarded as an exploration acreage on terms different from 28 small and medium-sized fields like Panna/Mukta and Tapti and Ravva awarded alongside during 1991 and 1993.

The petroleum ministry in a draft policy has proposed extension of the PSC for these fields by 10 years or the balance economic life of the field, whichever is earlier.

In case of the small-  and medium-sized fields where ONGC is not the licensee, the fields return to the government on expiry of the contract period, which will then be auctioned. Until then, production may have to be shut and field facilities damaged for no maintenance.

Cairn's Rajasthan block is not included in this policy.

Also, ONGC, which is a party to the Rajasthan PSC as well as the licensee, will need to agree to any extension of the production and exploration licence.

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