The controversy surrounding a revision in estimates of hydrocarbon reserves in its Rajasthan field by the Indian unit of Cairn Energy Plc has taken a twist with the UK company’s partner in the field, government-owned Oil and Natural Gas Corp. Ltd, saying it wasn’t consulted before the announcement.
Shares of Cairn Energy, which is listed in India, jumped 3.76% to Rs292.80 on the Bombay Stock Exchange following its 23 March announcement. The exchange’s benchmark index rose 0.23% to 17,451.02 points the same day.
Cairn had raised estimates of in-place reserves at its Rajasthan block (RJ-ON-90/1) to 4 billion barrels of oil equivalent (boe) from 3.7 billion boe and had also lifted its estimates on potential reserves to 6.5 billion boe from 4 billion boe.
The Directorate General of Hydrocarbons (DGH), a body under India’s ministry of petroleum that is part of the committee that signs off on approved reserves, has already written to the country’s stock market regulator Securities and Exchange Board of India (Sebi), stating that there are only 2.1 billion boe of approved reserves at Cairn India Ltd’s Rajasthan field.
DGH does not certify contingent or potential resources. It only signs off on the quantum of so-called producible reserves. This is termed approved reserves.
“We have taken up the issue of them (Cairn) making the announcement without consulting ONGC,” said R.S. Sharma, chairman and managing director, ONGC. The state-owned firm has a 30% stake in the field which is operated by Cairn.
“How can Cairn make the announcement without consulting ONGC? It is right for ONGC to ask them these questions,” said a senior DGH official who did not want to be identified.
Manu Kapoor, a spokesperson for Cairn said in an email reply the company is working with the ministry of petroleum and ONGC “to unlock the full potential of the Rajasthan block” and that its announcement had clearly said that it would need the government’s approval. He added that “as a listed company and operator of the Rajasthan block, Cairn” had the right and the responsibility to announce “the material estimates of the resources on the block.” Kapoor said that Cairn recognizes and takes “on board the comments made by” ONGC.
In its press release dated 23 March, Cairn had said that consultants “DeGolyer and MacNaughton have conducted an independent assessment of reserves and contingent resources, and have also reviewed the majority of the leads and prospects in prospective resources.”
On 26 March, DGH’s director general of hydrocarbons S.K. Srivastava wrote to Sebi chairman C.B. Bhave saying that the reserves in the Rajasthan block were “2.1 billion boe only”, as reported by Mint on 27 March.
The approval of 2.1 billion boe was given by a management committee, which comprises representatives from government of India, DGH, Cairn and ONGC.
“How can anyone announce anything not approved by the management committee?,” asked a petroleum ministry official who did not want to be identified due to the sensitive nature of the issue.
The Rajasthan field produces around 25,000 barrels a day of crude.
Cairn expects to increase this to 125,000 by the second half of this year. Cairn has already made an investment of $4 billion (Rs17,760 crore) in the Rajasthan field and has said it will invest an additional $2 billion over the next two years.
“Disclosures relating to reserves and potential reserves is highly sensitive information, for all stakeholders, including the government, consortium partners and public shareholders. The production-sharing contract requires the contractors to keep the government advised of all developments taking place with full and accurate information and progress reports, if necessary on a daily basis,” said Gokul Chaudhri, partner at audit and consulting firm BMR Advisors.