Cairn India, the country's second largest private crude oil producer, is all set to commence production next week from its Mangala oil field in Barmer, Rajasthan, targeting an initial output of 30,000 barrels per day (bpd).

The company, which is a subsidiary of the UK-based Cairn Energy, operates three oil fields in Barmer namely Mangala, Bhagyam and Aishwariya (MBA). The Rajasthan operations are carried out on a 70:30 partnership with the state behemoth ONGC, which is now reported to be keen on an exit, as the obligation to pay all the levies had made the project economically unviable for the public sector oil giant. (See: ONGC feels unfairly burdened by Cairns deal).

The Mangala output will be augmented to 50,000 bpd by the fourth quarter of 2009 and will attain a level of 125,000 bpd by 2011. This will be supplemented by 40,000 bpd from Bhagyam and 10,000 bpd from Aishwariya to reach an overall plateau production of 175,000 bpd by 2011.

Cairn India is a laying a 585km heat-insulated pipeline at a cost of $800 million for the transportation of crude oil from the Barmer fields to Salaya oil export terminal near Jamnagar in Gujarat.

The company is planning to invest Rs16,000 crore ($3.4 billion) in the coming two years for the development of the Bhagyam and Aishwariya fields and construction of the marine export facility.

Funding for the Mangala project as well as the pipeline are already tied-up by the company.

The government has identified Indian Oil Corportaion (IOC), Mangalore Refinery and Petrochemicals Ltd. (MRPL) and Hindustan Petroleum (HP) as potential buyers for the crude oil from Cairn India, for about 2.4 million tonnes (48,000 bpd), which is only about 27 per cent of the peak production. 

The company said that they are looking at the pricing of the Barmer crude, relative to a low-sulphur benchmark like Nigerian Bonny Light crude. However, the buyers are opposed on the basis that the crude does not deserve to be benchmarked to Bonny Light.

MRPL, a subsidiary of ONGC is close to reaching an agreement with Cairn on crude pricing. It is understood that Cairn, who were not in favour of offering any concession earlier, is considering a 15-16 per cent discount.

MRPL has reported that it has shelved its plans to build a 15 MMTPA (million metric tonnes per annum) grassroots refinery adjacent to the existing one in the present economic scenario. However, the company is going ahead with its plans to enhance the capacity of the existing refinery from the current capacity of 9.6 MMPTA to 15 MMPTA by 2011 at a cost of Rs12,400 crore.

Cairn India's net profit for the March quarter slumped to Rs18.68 crore, 84 per cent lower compared to Rs116.43 crore for the corresponding period last year as a result of fall in global crude prices.

As the company has changed its accounting year end from December 31 to March 31, the annual results are not comparable. It reported a net sales of 1432.70 crore in March 2009 for the 15-month period against 1012.30 crore for the 12 months ended in December 2007. Correspondingly, the net profit was 803.50 crore against a loss of 24.50 crore.

India is the third-largest consumer of oil in Asia and is dependent on its imports which is up to 70 per cent. Development of domestic oil fields is a priority for the government to scale down the reliance on imported oil and save valuable foreign exchange.