HPCL, ONGC to buy initial oil from Cairn's Rajasthan block

Hindustan Petroleum Corporation's (HPCL) Vizag refinery and Mangalore Refinery of Oil and Natural Gas Corporation (ONGC) have been named buyers of the initial crude oil Cairn India will produce from its prolific Rajasthan block. The first 15,000 barrels per day of Cairn output has been split equally between the two coastal refineries, a top government official said. Indian Oil Corporation (IOC) would also take the Rajasthan crude once volumes reach 50,000 bpd by the end of 2009. "A formal letter indicating the volumes allocated between the three has been sent to Cairn. They (Cairn) has to now enter into appropriate crude sale agreements," the official said. When contacted, Cairn India CEO Rahul Dhir refused comments on the issue saying: "We are in discussions with the Government to finalise the offtake arrangement... We have not fully concluded the offtake arrangements so far." Dhir said the focus for the company currently was to start oil production from Mangala, the biggest oilfield in the Rajasthan block, by the third quarter of 2009 calendar year. "We are targeting 30,000 bpd (1.5 million tonnes a year) of crude oil production from Mangala by July-September quarter. Output will rise to 50,000 bpd (2.5 million tonnes) by Q4," he said. Cairn, he said, was trying to pump small quantities of oil in the next month or so. Cairn will initially produce 4,000 to 5,000 barrels of oil per day from its fields in the Barmer district of Rajasthan. The oil would be transported in trucks to Kandla on Gujarat coast for onward shipment to Mangalore on the west coast and Vizag on the east coast, the official said. Though IOC had indicated it can take up to 1.5 million tonnes of Rajasthan crude between its Koyali refinery in Gujarat and Panipat unit, the company would not immediately take the initial volumes as it lacks receiving facility. Koyali, where the oil can be transported in trucks, does not have facility that can unload the waxy Rajasthan crude that turns solid at room temperature. Also, it does not have heated storages. A heated pipeline to transport the crude to Gujarat coast would start in the fourth quarter, when an additional 50,000 bpd will be produced, Dhir said. Peak output of 1,75,000 bpd (8.75 million tonnes a year) from the Mangala, Bhagyam and Aishwariya fields in Rajasthan block is to first go to state refiners, the official said. IOC has indicated that it can take 20,000 bpd (one million tonnes) at its Panipat refinery in Haryana and another 0.5 million tonnes at Koyali unit in Gujarat once a delayed coker is installed at the refinery. "We are on track to delivering first oil in Q3," Dhir said. Mangalore Refinery, which till recently was the official offtaker of Rajasthan crude, wants only 1.2 million tonnes, while Hindustan Petroleum says it can take 0.5 million tonnes at its Vizag unit. The remaining unsold output would go to private refiners, the official said. Reliance Industries (RIL) and Essar Oil have expressed interest in buying Cairn crude. RIL wants 30,000 to 60,000 bpd of Cairn crude each for its two refineries at Jamnagar in Gujarat, while Essar Oil has written for 30,000 bpd this year and 1,20,000 bpd by 2011 when it expands its Vadinar refinery in Jamnagar. Since the crude is waxy, refiners need to put up infrastructure to receive the oil. Laying of spur pipelines and special heated storages for Rajasthan crude would take about six months. The Mangala field is expected to produce 30,000 bpd by the second quarter of 2009-10. Production hit a plateau of 1,25,000 bpd during H1 of 2010. Besides 1,25,000 bpd of Mangala, the adjacent Bhagyam field would produce 40,000 bpd and Aishwariya another 20,000 bpd. The peak of 1,75,000 bpd would be reached in 2011. Cairn is investing $850 million in a processing facility and another $940 million in a heated oil pipeline from the fields to the port of Viramgam in Gujarat. Cairn India, the subsidiary of UK-based Cairn Energy, holds a 70 per cent stake and is the operator of the Rajasthan block. ONGC is its partner with a 30 per cent stake.