Cairn oil to flow this month; ONGC may exit JV

Cairn, which has already started test production at its Rajasthan fields, is set to start commercial production of crude oil by the month-end, director-general of hydrocarbons VK Sibal said today.

Cairn India, which has dug over 60 oil wells in the Barmer district of Rajasthan, has already started test runs of its wells even as its joint venture partner Oil and Natural Gas Corporation (ONGC) has threatened to walk out of the venture unless the government clears it of the royalty burden.

"Cairn has already started production from its 60-odd wells. It is a test production and they are expected to start commercial production by May end," Sibal said on the sidelines of a conference on oil and gas in Mumbai.

Cairn India is expected to reach peak production of 8.5 million tonnes – a fourth of India's current crude production – in one and a half year from now, petroleum secretary RS Panday said.
 
Cairn, however, is yet to sign contracts with refiners for lifting crude from the Rajasthan fields. ONGC, the joint venture partner of Cairn in its Rajastahan project, is also reported to be opting out.

ONGC has asked the petroleum ministry to do away with the royalty that it has to pay on behalf of Cairn India Ltd in the Rajasthan block. The state-run oil explorer and refiner has threatened to give up its 30 per cent stake and walk away if the request was not granted, reports said.

If ONGC is to pay royalty on the oil produced from the block, then it would not be viable proposition for the public sector oil giant and may force it to consider exiting the project and also seek permission to relinquish its role as a licensee of the block, the report added.

The group of ministers looking into the matter had recommended reimbursement of royalty amount to ONGC as far back as in 1997, but an approval for that is yet to come, sources pointed out.

ONGC, which has a 30 per cent stake in the block, is only entitled to an equivalent share of crude oil recovered from the area, but it has to pay the entire royalty, including that of Cairn, which gets 70 per cent share of the crude produced from the field.