Reduce levies on oil production from existing 70% to 40%: Prachur Sah, deputy CEO, Cairn Oil and Gas

Prachur Sah, Deputy CEO, Cairn Oil and Gas

The country imports about 85% of its crude oil requirement by volume and the government is eyeing ways to increase domestic output. Vedanta’s Cairn Oil and Gas produces crude oil from its assets in Rajasthan, Andhra Pradesh and Gujarat. Prachur Sah, deputy CEO of the largest private sector crude oil producer in India who has been at the company’s helm of affairs since September 2020, tells Anupam Chatterjee how it makes more sense to invest in enhancing output from existing producing oil fields than increasing the reliance on imports. Excerpts:

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What steps can be taken to ramp up production at the existing producing oil fields in Barmer?

There are multiple avenues to increase production from our Barmer blocks in Rajasthan. One is, what we can do in terms of additional exploration. The success rate is higher in the near-field explorations. We have also been assessing the potential of shale in the Barmer block. The other avenue is recovery enhancement, including Alkaline Surfactant Polymer. Right now, we are working with the government to see how these efforts can be made viable and expand them.

What are the challenges in raising output from existing fields?

For all the existing fields, as they become mature, the cost of production increases. It gets more difficult to extract and you have to deploy technology and the capital intensity increases. Our commitment is to increase production, and it has to be made financially viable. For our blocks, as much 70% of the revenue generation goes as levies to different governments, directly or indirectly. The cost of running the operations takes up about 20-25%. This makes it even more difficult for us to invest in the capital-intensive technologies. Ideally, if the levy structure can be brought down to 40%, which would still be higher than the global benchmarks of 30-35%, it can unlock significant investment in these assets to increase production.

Is the government willing to alter the levy structure?

We have been discussing with the government about how we can partner with them to incentivise production. The government has been very open to different ideas and suggestions and I believe they are working on how to make it viable. About $3-4 billion of investment is required to enhance production. About $2-3 billion have already been invested in the last three to four years to enhance output in these production sharing blocks. The collaboration of the government is a key factor on how to increase domestic production substantially. Focus should be on higher production rather than revenue. The point is, if consumption is constant then higher import dependency will persist if domestic production is not increased.

Will this not lead to increase in prices?

Domestic cost of crude oil production is around $25-30 per barrel, while imports are being done at around $70 per barrel. So it makes all sense to invest in production even if output cost rises to $40 per barrel. Oil and gas investments are currently being done with a very cautious approach and explorations have been stopped in a lot of countries. However, what we can say for sure from India’s perspective is there is still a large room to improve our own domestic output. If more encouragement is provided, it will also be a signal for international players to make India an investment destination. At the end of the day, whether it’s the enhanced oil recovery policy or the shale policy or the exploration policy, all of them are trying to increase the investment in the activities and subsequently increase production.

When can commercial production of crude oil expected to commence from OALP blocks with your company?

For our OALP blocks, we recently announced the first discovery in the Cambay region. And we are looking for ways to monetise it as early as possible. Of course, the size of the discovery determines how quickly we can monetise. We believe the first production from OALP should not be that far, and within the next six to 12 months we hope to see the start of some production. The large impact of OALP production impact should take three-four years, and that is why we are insisting that simultaneously we should also look at ways to increase production from the exiting assets.

Will you be interested in the upcoming OALP auction round?

For OALP auctions, we participated quite heavily in the initial rounds. Whenever we take a decision to get a block, it is based on the sound prospects and positions to take it forward. We are constantly evaluating the blocks bid put up under OALP on a case-to-case basis. And if a block comes with the right opportunity, we will definitely consider. The initial blocks had lots of attractiveness in terms of prospects.