Mumbai: Cairn India Ltd (CIL), part of the Anil Agarwal-led Vedanta Group, will invest $1 billion in five projects that the company plans to develop shortly, acting chief executive officer, Sudhir Mathur, told analysts after the company's results were announced on 9 February.
"There are about five projects that we are very, very keen to initiate—the Raageshwari Deep Gas (RDG) project; the enhanced oil recovery (EOR) programme at Aishwariya fields, the EOR programme at Bhagyam and Barmer Hill and Aishwariya Barmer Hill, which is a tight oil. The cumulative capital spend could definitely be in excess of a $1 billion," said Mathur.
These projects constitute about 80,000 barrels of oil equivalent to 100,000 barrels of oil equivalent at peak production.
The investment, however, hinges on the extension of the production-sharing contract (PSC) of the Barmer oil and gas block in Rajasthan.
State-run Oil and Natural Gas Corporation (ONGC) is a partner in the block with 30% stake. Cairn India holds the rest (70%) in the block.
“Much as we believe that we should get it very soon now, but the projects cannot be viable till 2020, any one of these projects. So that's the only marker that stands in between,” Mathur added.
The Delhi high court had in November had directed the government to take a decision regarding extension of the (PSC) with Cairn India, to produce oil from a Rajasthan block till 2020.
“The government is supposed to come back on February 28, but the hearing subsequent to that is planned for March 31, if required,” Mathur told analysts.
Cairn is also scouting for oilfield service providers who could bring in technology as well as and provide an end-to-end solution or service in order to develop these fields.
“This will help Cairn optimize costs further by attracting a larger number of global oil field service companies with their niche expertise and technologies; provide a better coordination between vendor partners allowing efficient and time bound project execution and targeting a large number of projects simultaneously. The business opportunity is immense,” said Mathur.
The gestation of these projects would range between 16 and 24 months. "So to kick start, we could—possibly all of them at the same time, you could see peak production levels of 70,000 barrels from day one within about 18 months to 19 months," he added.
An analyst with a Mumbai-based domestic brokerage said financing these projects would not be an issue for Cairn India as the company is sitting on an impressive cash pile. Cairn’s free cash flow for the third quarter stood at Rs 15 billion.
Cairn’s revenue for the quarter increased 5% sequentially to Rs 21 billion on account of pickup in the Brent crude prices and improved discount to Brent for Rajasthan crude.
Average Brent price was up 8% over the quarter to $49.3 per barrel, resulting into 10% increase in our overall realization to $46 per barrel.
Earnings before interest, tax, depreciation and amortisation (Ebitda) stood at Rs 11 billion, highest in past six quarters with a 50% margin. Ebitda is an indication of a company’s profitability.
Net profit after tax stood at Rs 6 billion, a drop of 22% quarter-on-quarter. “The decline was largely due to foreign exchange and higher effective tax rate, which is only partially offset by the higher ebitda and lower depreciation,” the company said on the analyst call.