Cairn to flow first oil in "few days", sees cost at $ 5/bbl

Cairn India, which will commence production of crude from its Rajasthan fields later this month, expects to keep the cost of crude produced at about USD 5 per barrel, company managing director and CEO, Rahul Dhir, said.

"We are ready. There are a few days left (for production to commence)," Dhir told reporters after the company's third AGM here today.

"We intend to keep costs low and see the cost of production at about USD 3.5 per barrel. Another USD 1.5 (per barrel) will be added as transportation cost," he said.

The company, a unit of UK-based Cairn Energy Plc, will flow first oil from the Mangala, Bhagyam and Aishwariya (MBA) fields this month itself.

Cairn will produce up to 8.75-million tonnes or 1,75,000 barrels per day (bpd) of low sulphur, waxy crude from these fields.

This will account for about 20% of India's oil production and is estimated to bring down the country's import bill by about USD 6.8-billion, according to Goldman Sachs.

Dhir said the company would employ Enhanced Oil Recovery (EOR) techniques to ramp up output over 1,75,000 bpd already envisaged. 

The company has received approval for its revised Field Development Plan and is targeting an output of 1,25,000 barrels of oil per day (bpd) from Mangala in the first half of 2010.

The explorer will also spend USD 1.5-1.8-billion in 2010-11 in 25 discoveries it has made in Rajasthan so far.

Cairn, along with its 30% partner state-owned ONGC, will develop the RJ-ON-90/1 block in the state.

"We will be spending USD 1.5-1.8-billion in 2010-11. Seventy to eighty per cent of this will go into the Rajasthan fields," Dhir said.

It would also spend USD 1-billion to build a 600-km long pipeline to transport crude from Barmer in Rajasthan to neighbouring Gujarat.

"The crude oil pipeline is expected to be completed by the end of 2009 and until then the crude will be evacuated by trucks to the Gujarat coast to be shipped to two buyers nominated by the Government of India, namely MRPL and HPCL," company's chairman and non-executive director, Bill Gammell, told shareholders.

The Government has nominated Indian Oil Corp (IOC), Hindustan Petroleum Corp (HPCL) and Mangalore Refinery and Petrochemicals (MRPL) for purchasing crude from Cairn fields.

IOC and MRPL have been allocated 0.20-million tonnes each in 2009-10, while HPCL would offtake 0.30-million tonnes of Rajasthan crude.

"We have commercial agreements with MRPL and IOC for the crude offtake. This is currently at a 10 to 15 per cent discount to Brent. We are still in talks with HPCL," Dhir said.

Kandla has been approved as the interim delivery point for offtake by MRPL and HPCL while IOC will pick up the crude at Bhogat, Radhanpur and Viramgam.