New Delhi: Cairn India Ltd, credited with the largest onshore oil discovery in India, said first quarter profit fell by 18% to 3,127 crore from the year earlier period.

Net revenue fell by 8.49% to 4,063 crore in the in the three months ended 30 June from 4,440 crore in the year earlier because it paid a higher share of profit to the government and royalty expense.

“During the quarter, the profit petroleum pay-out to the government rose from 20% to 30% in the DA1 in the Rajasthan block. The profit petroleum and the royalty paid in the Rajasthan block (net to the company) was 1,054 crore ($189 million) and 873 crore ($156 million) respectively," Cairn said in a statement.

“Cairn India 1QFY2014 results were below our expectations on both top-line and profitability front," Bhavesh Chauhan, an analyst at Angel Broking, said in a note to clients. Cairn India, which was acquired by London-based Vedanta Resources Plc. in 2011, plans to spend $3 billion (around 16,000 crore) over the next three years, chairman Navin Agarwal said. Of this, $2.4 billion would be spent on exploration activities in Rajasthan.

The investment would lead to the addition of 530 million barrels of reserves, Agarwal said in a statement on Wednesday. The Rajasthan activity would include drilling of 450 wells. Of these, 100 would be exploration wells and the balance development wells.

The government plans to set up a 9 million tonne per annum refinery at Barmer in Rajasthan to refine Cairn’s crude. This refinery, to be set up by state-owned Hindustan Petroleum Corp. Ltd, would require an investment of 37,230 crore.

India, the world’s fourth largest consumer of energy, imports as much as 80% of its crude oil requirements and 25% of its natural gas needs.

“The focus should be to improvise above-the-ground factors, which have a significant influence on the progression of domestic hydrocarbon resources to reserves," Agarwal said.

This comes at a time when questions have been raised about the diminishing interest in the Indian hydrocarbon sector. While India’s oil and gas sector has attracted interest from investors such as London-based BP Plc. and Vedanta Resources, there have been concerns about diminishing interest in the area, prompted largely by the policy regime.

“There is a steep decline coming. By 2020, India has to do some pretty big exploration work. That doesn’t look very bright," said Bob Fryklund, chief upstream strategist at IHS Inc.—a data and research firm.

The country’s energy demand is expected to more than double by 2035, from less than 700 million tonnes of oil equivalent (mtoe) today to around 1,500 mtoe, according to the oil ministry.

“There are plenty of opportunities elsewhere in the world, which are much more stable from the point of view of policy and regulations. It is pretty tough to attract foreign investment in the current environment. The environment is difficult and not very transparent. It is difficult for foreign players to make investments," said Oliver Stephenson, research director, EnergyView, senior principal researcher at IHS Herold.

On Wednesday, Cairn India’s stock fell 0.63% to 307.85 on the BSE, while the exchange’s benchmark Sensex fell 1.04% to 20,090.68 points.

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