Cairn India today said it has begun drilling its first exploration well in four years on the prolific Rajasthan block that will help boost output to 215,000 barrels per day by March 2014
A block oversight committee, headed by the Directorate General of Hydrocarbons (DGH), had on February 14 allowed the company to drill its three wells to explore new oil pools on Rajasthan block this fiscal.
"Following endorsement of the exploration Work Programme for the Rajasthan Block (RJ-ON-90/1) by the Management Committee less than two weeks ago, Cairn India has today commenced drilling of the first exploration well, after a gap of more than four years, in the prolific Barmer Basin," the company said in a statement.
Cairn currently produces 170,000-175,000 bpd from the Rajasthan block and plans to finish 2013-14 with a production of 200,000-215,000 bpd from the block.
Also read: OilMin nod for drilling in exploration area
"This (drilling) is pursuant to the clarity in policy by the Government of India, allowing for exploration operations in development blocks," the statement said.
Cairn plans to drill 30 exploration wells by March 2014 and a similar number in the year thereafter.
"Renewed exploration activity in the block will help us realise the estimated half a billion barrels of oil equivalent of risked recoverable prospective resource which amounts to about a third of the Estimated Ultimate Recovery potential in the Rajasthan block," it said.
"This will help realise the basin production potential of 300,000 bpd from the Rajasthan block," it added. The three exploration wells Cairn will drill this fiscal will cost USD 15 million.
Cairn believes the Rajasthan block holds an in place resource base of 7.3 billion barrels that can support 300,000 bpd of output. This potential can be realised only if it undertake further exploration to locate the oil zones.
The proposal to allow exploration in a producing field was pending with the Oil Ministry for more than one and a half years. Only last month the Ministry allowed firms like Cairn to drill probe wells within an oil and gas field, but with the condition that cost recovery of such wells would be allowed only in case there is a commercially exploitable discovery.
The condition that cost recovery will be allowed only in case of successful discovery means that cost of drilling any well that does not lead to a discovery, or a small find that could not be independently produced, will not be allowed. Currently, when a company finds oil or gas in an area, the discovery area is ring-fenced and a mining lease is granted for production of hydrocarbons.
Operators get to recover all their cost - whether successful or failed wells, from the oil and gas produced and sold from that particular block.
Cairn India stock price
On November 27, 2015, Cairn India closed at Rs 137.15, down Rs 1, or 0.72 percent. The 52-week high of the share was Rs 274.90 and the 52-week low was Rs 121.25.
The company's trailing 12-month (TTM) EPS was at Rs 0.15 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 914.33. The latest book value of the company is Rs 197.62 per share. At current value, the price-to-book value of the company is 0.69.
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