Cairn Energy sells Gauri crude oil in the open market

Vol 9, PW 24 (23 Mar 06) People & Policy

Cairn Energy has become the first company in India to be permitted to sell crude oil from one of its fields on the open market and not to a state-owned refiner.

Under the terms of Indian PSCs, locally produced crude is usually sold to a state-owned refiner nominated by the oil ministry. That is, if the state-owned refiner wants to buy it, which in the case of oil from the Cairn-operated Gauri gasfield in Gujarat, it doesnt.

Gauri is primarily a gas-rich field and lies within the offshore shallow water pre-NELP block CB-OS/2. In August 2003, while drilling gas development well GA-3, Cairn struck a small oil pool, which was subsequently found to be economically viable to develop.

Since November 2005 it has been producing between 3000 b/d and 4000 b/d oil from the field. We will produce crude for as long as possible, a Cairn source tells us.

When Cairn first submitted its development plan for Gauri oil, the oil ministry nominated IOC to receive the crude. But IOC showed little enthusiasm and neglected to give an acceptance letter, delaying field development.

After much correspondence, IOC offered a price but dithered in taking delivery. Impatient, the ministry tired of waiting and allowed Cairn to sell the oil on the open market.

Gauri oil is crude co-mingled with naphtha, says a source. IOC was unwilling to collect it from the downstream flange.

Solvents and paint manufacturing industries are now purchasing Gauri crude. Says a ministry source: IOC found it uneconomical to buy Gauri crude given the storage and transportation costs.

Still, the ministry has laid down a condition that Cairns net realisation from sales in the open market cannot be lower than what IOC would have offered. Cairn has not given up attempts to sell the crude to IOC.

Cairn plans to lay a pipeline to transport Gauri crude to an ONGC gathering station for onward despatch to (IOCs) Koyali refinery, says a source. This is the most economical way to despatch the crude.