Govt okays Cairn's production from Bhagyam oilfield

Cairn India has got a government a go-ahead for commencement of production from the Bhagyam oil field, the second-largest find in the exploration firm's prolific Rajasthan block, reports CNBC-TV 18.

Shares of the company jumped 2% to Rs 347.70 post this news

Cairn, which was recently taken over by London-based mining group Vedanta, will begin oil production from Bhagyam at the level of 20,000-25,000 barrels per day bpd) this week and it will reach the approved peak output of 40,000 bpd later by March this year.

Oil and Natural Gas Corp (ONGC), which holds a 30% stake in the Rajasthan block, had asked for third party certification to ascertain if Cairn's production plan will prudently exploit the reserves and if the surface facilities are capable of handling oil and water from the field.

This  certification endorsing the production plan came a few days ago, after which ONGC gave its approval for commencement of production.

Cairn, the operator of the Rajasthan block with a 70% stake, was ready to pump oil from Bhagyam in October, but delayed the production in the absence of regulatory approvals.

So far, the company has committed more than $250 million toward development of Bhagyam against the approved Field Development Plan estimate of $470 million.

Approvals for the Bhagyam field were delayed because of a dispute over payment of royalty and oil cess with partner ONGC.

But now that UK's Cairn Energy— which sold 40% of its stake in the Indian unit to Vedanta— and the Anil Agarwal-led firm have agreed that Cairn India will share royalty and pay cess on its 70% share in the block, the government has given a nod to start production.