Cairn India on the Oil and Gas sector 2016

Posted by: at 12/30/2016 03:49:00 am
Cairn India on the Oil and Gas sector 2016


30 December 2016 Hyderabad: The oil and gas sector is among the six core industries in India and plays a major role in influencing decision making for all the other important sections of the economy. India’s economic growth is closely related to energy demand; therefore the need for oil and gas is projected to grow more, thereby making the sector quite conducive for investment. India will overtake Japan to become the world’s third largest oil consumer behind the US and China by 2025. The strategic task for India is to figure out how it can create an environment such that its energy needs are met domestically since India imports close to 80 per cent of its oil consumption. Purchasing resources is easy but a large country has to have a long term economic strategy. Maximizing on domestic natural resources is far better than  importing.

According to International Energy Agency India’s net oil imports will grow from US$ 110 billion in 2014 to US$ 480 billion in 2040. That will have a deleterious impact on India’s economy and will lead to huge transfer of wealth every year from India to oil exporting nations. In its plans for the sector, the Government of India’s (GoI) vision runs complementary to rise in domestic demand. The Prime Minister has just issued a clarion call to potential partners to invest in the sector, affirming that the country's economy is expected to grow five-fold by 2040. It is important that the energy policy is responsive to the needs of the nation and players in the sector. For example, if one is allowed a fair market price for oil, for every dollar one gets, 70 per cent of that will go to the national exchequer. The government understands these issues. here are have been some very positive developments in 2016. The sector has had some respite in the rate of cess this Budget and hope that with the oil prices gradually rising, the next Budget will further consider the current rate of 20 per cent ad valorem cess. Cairn India’s extension of our PSC contract also looks positive. Added to this, with the merger in place, things are surely looking up.

2016 also marks a generational shift and modernization of the oil and gas exploration policy. The introduction of HELP is a major policy step in the right direction. Allowing companies access to all forms of hydrocarbons, marketing and pricing freedom for gas and moving towards an open acreage licensing system are a quantum change in the E&P sector governance in the country. For Cairn India, 2016 also marks achievement of a big milestone. The Mangala Oil Field in Rajasthan crossed the mark of 300 MMBBLS of cumulative production, thanks to the company’s technological
inventiveness especially the ambitious Enhanced Oil Recovery (EOR) program, the world’s largest polymer EOR project, which is being implemented in the MBA (Mangala, Bhagyam and Aishwariya) oil fields, to help arrest natural decline and maintain production. Being a pioneer in technology application in the Indian oil and gas space, Cairn India’s focus on technology has yielded exemplary results in extending the life of Rajasthan’s mature oil assets. With India gradually moving to a gas based economy owing to the increasing significance of gas in the overall energy mix, Cairn
India is also leveraging gas potential of the Rajasthan block – it aims to quadruple gas production, to support resource maximization from the block. With expected evolution to gas-based economy, Cairn’s ultimate recovery from Raageshwari Deep Gas (RDG) field upgraded by over 25% in the Q2 of 2016-17. However, a long road remains to be tread. The total crude oil production in 2015-2016 was 33 million tonnes as opposed to 38.76 million tonnes in 2014-2015. This presents an urgent need to boost domestic production and encourage investments in the sector, with predictions of rise in consumption. There is a need for a policy that promotes domestic production. Businesses would invest only when they get risk adjusted returns. Issues such as PSC extension, CESS and fair price realization are key elements that determine the return. Cairn India is committed to the cause of the nation and the Prime Minister’s call to reduce imports by 10 per cent by 2022. While Cairn tries to bring down operational costs and lower capex to maximize production in alignment with the PM’s directive, the company has been conscious about the impact of such an exercise on its environmental and social commitments. The driving force behind Cairn’s sustainability program has been the need to minimize and balance impact on the environment and society with the requirement to grow in a manner that is attractive to shareholders as well as the communities it operates in. Cairn India looks forward to an exciting 2017 and will continue work with the government, to drive production to serve the energy self-sufficiency goals of the country.
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