Mangala crude at basket price for state-owned refiners

Vol 12, PW 13 (13 Nov 08) Midstream & Downstream

Uncertainty over the future of crude oil sales from Cairn India’s Rajasthan fields is drawing to a close.

PETROWATCH learns state-owned refiners have agreed to buy all the waxy crude that is expected to flow by this time next year from Cairn’s Mangala and other fields in Rajasthan at a price linked to a basket of crude oils yet to be devised by the government and the contractors. An October 23 meeting between the oil ministry and IOC, HPCL, BPCL and Mangalore Refineries reached broad agreement that all state-owned refiners will buy the Rajasthan crude.

Until now, it was assumed the only customer for the crude would be government-nominee and ONGC subsidiary Mangalore Refineries, which has said it is willing to take 20,000 b/d out of the daily plateau production of 180,000 b/d. “Each of them (IOC, HPCL and BPCL) now indicated that they are willing to buy a certain quantity of the Rajasthan crude,â€‌ we are told.

“How much each company will buy will be decided over the time.â€‌ Under the PSC, crude from the Cairn India Rajasthan fields must be sold to a government nominee, placing full responsibility on the oil ministry to find a buyer.

In the past IOC, HPCL and BPCL complained that the waxy crude will be difficult to process and should be sold at a discount; Cairn India thinks just the opposite, saying domestic refiners would save on transportation costs of equivalent imported crude. A sale price, we hear, will be jointly decided by contractors Cairn India (70%) and ONGC (30%) from a basket that “yields products similar to the (Rajasthan) contract area.

â€‌ Characteristics like specific gravity, sulphur and metal content, the pour point and product yield would be specified. Any decision on the basket would be in place, as required in the PSC, six months before production - expected from the last quarter of 2009.

Cairn earlier said that in December this year it would start using two custom-built Weatherford rigs to drill the 260 development wells at the Mangala, Bhagyam and Aishwariya fields within block RJ-ON-90/1.