Mumbai: Oil explorer Cairn India Ltd is gearing up to inaugurate its Mangala oil field in Rajasthan on 29 August. The field would start with production of 30,000 barrels per day (bpd) of Barmer crude and hopes to ramp it up to 130,000 bpd by the first half of 2010. Chief executive officer Rahul Dhir said in an interview that the firm would complete its crude evacuation pipeline by December. Edited excerpts:
Reserve energy: Cairn India CEO Rahul Dhir says its Mangala project will be a big step towards addressing the country’s oil deficit. Keith Bedford / Bloomberg
How does the start happen—from next week onwards you’re on with train one, which we believe is about 30,000 bpd?
If you take a step back, the resource base is very substantial. It is over 3.5 billion barrels of oil. We are right now starting the first of 25 discoveries—Mangala, which is the biggest discovery. There are four trains, which will be constructed over the next 18 months with a cumulative capacity of over 200,000 bpd. Mangala is coming onstream. Now the first train has a capacity of 30,000 bpd and then we will add another 100,000 bpd capacity, so we hope to get to a plateau by the first half of next year... It is an exciting journey.
This is a very important first step for us, but we see a resource here that will produce probably for the next 40-50 years and we are just starting with the journey.
Just to get this road map correct: You said 30,000 bpd now from next weekend, then you will add 100,000 bpd. By what period will that happen? What does first half of the next fiscal mean? Tentatively, which months are you looking at to get to 125,000-130,000 bpd?
The way these things work, you don’t start a tap with a big sort of flow. So we will be ramping up gradually with a few thousand barrels a day, but the way I see this right now is that sometime between now and say the first half, and we haven’t really given a precise date to that because one needs to have some flexibility in planning, but we are looking at about kind of an eight-nine month ramp-up that will take you from start to the plateau.
And by when do you get up to that target of 200,000 bpd?
The current target we are looking at is 175,000 bpd. We are putting in place the capacity for additional oil because we are convinced there is a lot more hydrocarbons here. The 175,000 bpd, which is the government-approved plateau level, those we would hope to get to by 2011.
There have been some concerns about delay in your pipeline completion because of weather constraints. Are there any apprehensions on that score?
We have said that we are very convinced. One is, of course, we are excited to start production, second is our conviction for delivering the plateau by the first half of next year is very much there, and in a project like this, you’re always going to have challenges and there will be pluses and minuses.
It is kind of a live project, but it is more kind of an issue for my operational guys to worry about than for the market or for the government. But these challenges remain, they are very much part of the project. We don’t see anything substantial really affecting it.
So, right now the delivery will be through trucks till the pipeline gets fully ready. By when do you think the pipeline will be ready—end of this calendar year?
We are targeting the completion of the pipeline by the end of the year. Again, when I talk about years and months, it is all calendar years.
Do you have any long-term oil contracts in place aside from the pricing that you’ve arrived at which you disclosed? Are there any that you have worked on?
Fundamentally, there is a long-term relationship because as part of the production-sharing contract, we have an obligation to sell to the government and they have an obligation to buy from us and that’s pretty much sort of how it is worked with all our other discoveries and resources in India. And because the government is part owner of the project, there is also commitment that the pricing of the crude has to be consistent with other internationally traded crude...(of) a similar quality, and that is basically the pricing that we’ve got reflected.
The government then, in turn, will look to allocate crude on an annual basis to various nominees and so they have nominated right now a couple of PSUs (public sector units). IOC (Indian Oil Corp. Ltd) and MRPL (Mangalore Refinery and Petrochemicals Ltd) are the two that we have agreed (on) pricing and we are looking to deliver to them.
In due course, they (the government) will nominate other companies as our production ramps up—so we really don’t see crude offtake as a big issue.
Of course, as you know, the country is massively short—we are importing 2 million barrels a day. So this is a big step towards alleviating that and the government has been very committed. In fact, we have had good support both from the state and Central governments on this project all the way through.
The price that you have struck with IOC and MRPL is at a 10-15% discount to the price of Brent crude. Are you happy with that price or you would have expected slightly more favourable pricing?
The beauty of this is that, of course, the pricing has to be fair and it has to reflect the chemistry of the crude. So it is a fairly objective metric and we picked a benchmark and then we have adjusted from the benchmark to reflect the quality of the crude. So I am delighted...that we have done the right thing for the government and for our shareholders.