ONGC to invest $350 million more in Cairn's Rajasthan fields

06 June 2009

The board of state-owned Oil and Natural Gas Corp (ONGC) today decided not to pull out from its joint venture with Cairn India, and to invest around $350 million more in the the Rajasthan fields operated by Cairn.

Cairn had earlier revised the total cost for developing three oil fields in the Rajasthan block to $3.60 billion, including $940 million for laying a pipeline for pumping out crude oil to Gujarat coast.

In 2005, when the work started Cairn India estimated the development cost of the block, which comprises three main oilfields - Mangala, Bhagyam and Aishwariya fields - at $1.5 billion.

As per the revised cost structure, ONGC's total exposure in the project will rise from $874.2 million to $1.22 billion.

However, the ONGC board found the investment much higher that its earlier estimates and deferred a decision on its last meeting. There were even reports that ONGC may exit the JV unless the government clears it of the royalty burden. (See: Cairn oil to flow this month; ONGC may exit JV).

ONGC's contention was that if it  is to pay royalty on the entire oil produced from the block, then it would not be viable proposition for the public sector giant.