Has Cairn set bar too high on output? St feels so

Cairn India, the most profitable business of Vedanta Resources Plc, has signed crude oil sales agreements in excess of 200,000 barrels per day (bpd) for this fiscal, leaving analysts sceptical about its ability to deliver.

But the company’s annual report for last fiscal expresses confidence about closing the year with production between 200,000 bpd and 215,000 bpd – and therefore, the sales agreements with private and public oil refiners.

While a majority of the production will come from its existing Mangala, Bhagyam and Aishwariya – or MBA — fields, Cairn also plans to add output from Barmer Hill this fiscal.

The annual report does not indicate this specifically, though.

“With the commencement of crude oil production from the Aishwariya field, coupled with production ramp-up from other producing fields during the year, Cairn India expects Rajasthan to support a higher level of production vis-à-vis last fiscal,” the report said.

The MBA fields currently produce a little above 175,000 bpd.

Analysts doubt if Cairn would be able to achieve the output goal sans contribution from Barmer Hill. They doubt if Barmer Hill could produce anything at all this year as the company is yet to go through the tedious and time-consuming process of government approvals.

“If Cairn is able to produce beyond 200,000 bpd, it will be a major confidence booster as it has failed so far to meet targets at Bhagyam,” said an analyst from an international brokerage, who did not wish to be named.

Cairn has an approval to produce 40,000 bpd from Bhagyam but so far it has been struggling to ramp up. Also, production at Mangala, having sustained for the last four years, is flagging now and the company is resorting to enhanced oil recovery techniques to maintain the production plateau.

“In such a scenario, it looks difficult that the company will be able to deliver on its agreement for sales for the current,” said the analyst.