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View from the top: Looking through the lenses of Indian oil CEOs

Cairn moves into top gear as growth reaches 'inflection point'

By Sambit Mohanty

A cocktail of exploration and production successes have propelled Cairn India on a growth trajectory that it hopes to sustain in the coming years by focusing on its core business and selecting investment projects with care.

Sudhir MathurThe company, which accounts for about 27% of India's crude oil production, has a robust investment plan in place as it tries to more than double its production as well as reserves, according to CEO Sudhir Mathur.

India's second-largest upstream producer, after state-owned Oil and Natural Gas Corp., is aiming for a production of 500,000 b/d of oil equivalent from 204,000 boe/d currently. It is also targeting 3 billion boe of proven and probable reserves, against 1.3 billion boe currently.

"We are aiming for a capital expenditure of $3 billion over the next three years," Mathur told S&P Global Platts in an interview. "I don't want to put a timeline by when we can achieve those production and reserve targets, but it's certainly a vision that we have and we are working hard towards that."

Cairn has three producing assets -- Rajasthan in the west, Cambay off India's west coast and Ravva off the eastern coast. It's flagship asset is the Rajasthan block, which was discarded by Shell as too marginal to develop in 2000. Cairn has made 38 discoveries in the Rajasthan block to date.

Cairn is also focusing on enhanced oil recovery at its Mangala, Bhagyam and Aishwarya fields as well as the Raageshwari project and a tight oil play.

"We are at an inflection point -- on both exploration as well as production," Mathur said.

"Seeing the success of the Mangala EOR -- tertiary recovery -- we are looking to extend that to the Bhagyam and Aishwarya fields. Those tenders, we should be looking to award in October. For the Raageshwari gas project, we should be awarding it within October," he added.

The company is also eyeing tight oil production from the Barmer Hill reservoir. "For our tight oil business, we are looking to award the contract in October. We have received bids for drilling and fracking," he added.

Mathur said that Cairn had started exploration in some of the newer areas in Rajasthan and was also looking to start drilling in the Krishna Godavari Basin.

"In KG, where we had done seismic work earlier, we are looking at starting drilling in the next weather window. It looks very prospective," he added.


Earlier this year, India's oil ministry announced its new Open Acreage Licensing Policy for oil and gas exploration, which allows bidders to carve out areas where they want to drill.

Cairn India's domestic assetsUnder the new policy, the government will hold an auction of the blocks twice a year. The first round was held in July 2017. The selection of oil blocks would be based on seismic and well data provided by the Directorate General of Hydrocarbons in the National Data Repository.

The auctions are part of an overhauled exploration licensing policy that allows pricing and marketing freedom for operators and is a move to a revenue-sharing model, under which the government gets a share of the revenue from the moment production begins.

"OLAP is quite exciting. We have bought sufficient data to start working on it. So if you look at things sequence-wise, there is a lot of new production that should come on stream from new investments. We are looking at identifying projects for drilling within Rajasthan, followed by drilling in the KG Basin, and then followed by OLAP. This should provide us a continuous growth trajectory," Mathur said.

He praised the policy reforms undertaken by the government in the past three years in the oil and gas sector, but said that more needed to be done to create a free market and attract foreign investment in the upstream sector.

"We have been delighted at the policy reforms that we have seen in recent years. The government has done an outstanding job and has taken some powerful initiatives in pushing towards a free market, and I am happy that the oil minister is not rolling back the free market initiatives," Mathur said.

The government needed to bring down taxes as well as bring crude oil under the purview of the Good and Services Tax.

India in July embraced a unified tax structure across a wide range of goods and services while it kept crude, natural gas and some oil products out of GST's purview. Government officials have said that New Delhi would look into the possibility of imposing GST on the energy sector at a later date.

But oil companies -- both state-owned and private -- have highlighted that the move to keep the five products out of the GST list could affect investments in infrastructure, as their input costs would rise because of the GST but they won't be able to pass on the tax burden to consumers.

"I certainly think that the crude oil tax is still high. We are burdened with too many costs. In Rajasthan, we are producing oil at $5.50/b. But we are importing oil at $50/b, which adds to the fiscal deficit. You need to provide very strong incentives to produce domestically, rather than give $50 to a foreign producer," he added.

A domestic crude producer currently has to pay about $10/b as ad-valorem tax, which Cairn sees as an unreasonable burden, especially at current prices.


India currently does not allow the export of crude oil. Mathur said that in order to attract more overseas investors in the upstream sector, the government needed to unshackle physical trade, simultaneously allowing both exports and imports of crude oil.

"Restricting crude exports can be a double-edged sword. Of course we have to keep the national interest in mind. But it forces foreign and private investors to think twice," Mathur said.

He said that the government also needed to address the gas pricing issue in order to incentivize producers.

"When you explore, you don't know whether you will get oil or gas. You don't want to feel unlucky if you discover gas," he said.

On diversification plans, Mathur said Cairn India would evaluate opportunities in the future to move into the petrochemicals sector, which offers a huge opportunity.

On the global market outlook, Mathur said that he expected crude oil to hover around $50-$60/b over the next year or so.

"The global industry has adjusted well despite low oil prices. But doing a deepwater project is tough today. I don't think anyone would consider a deepwater project," he added.

S&P Global Platts India CEO Series: Mukesh Kumar Surana, HPCL | Sudhir Mathur, Cairn | Sashi Mukundan, BP | Dinesh K. Sarraf, ONGC | B. Anand, Essar Oil | Sanjiv Singh, IOC

Interviews in this series were conducted and first published by S&P Global Platts in September 2017, except for the IOC interview which was conducted and published in November 2017.

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