Cairn Oil & Gas, a unit of Vedanta Ltd, has an ambitious plan to double its share in India’s domestic oil production. Cairn’s newly-appointed chief executive officer Nick Walker speaks to Amritha Pillay on the roadmap to achieve this target. Walker also discussed oil prices, the windfall tax in India and the global energy transition. Edited excerpts:
What is your view on oil for 2023 in terms of both demand-supply globally and where do you see prices heading?
Over a long period, there has been a lack of investment in new supplies of oil and gas. And then when you combine that with the political and geopolitical problems around the world, then that drives energy pricing. And so my view is we will see strong oil prices and gas prices looking forward. But we will also see volatility, like we've always seen, and so we plan our business to be able to cope with that volatility.
What is your view on the Indian market? How different is it from the other markets that you have worked in? What are the challenges and opportunities? What is the demand expectation?
Well, if you look at the Indian market, energy demand is growing very strongly and it relies heavily on imported oil and gas, about 85 percent of oil today and 50 percent of gas. And Cairn has got a unique position as the largest independent producer in India. We produce around 25 percent of the country's oil. And I think we've got a great asset base and a lot of exploration opportunities. And I think there's a great opportunity for us to grow our production base and continue to support India's energy demand looking forward. And the best supplier of oil and gases in India is oil and gas produced in India. And so that's our ambition. And we have the ambition to grow from around 25 percent of oil production today to around 50 percent from our asset base.
So how do you get to that 50 per cent mark? What are the plan and timeline? What could be the challenges?
We have an exciting asset base at our major Rajasthan operation and also some offshore facilities, which are producing, and a big exploration footprint around the country. And we have got some near-term growth opportunities in all of our assets, which we intend to invest into. And we have longer-term exploration opportunities, which we also intend to pursue. So I think a combination of investment in near, medium or longer-term asset growth opportunities is what will provide growth in our business.
You were seeking an extension for your Rajasthan block contract beyond 2030. Is there an update on that?
We've got a great opportunity to continue to invest in that. There are around 6 billion barrels of discovered resources in the ground and we've produced around 12 percent today. And so we've got ambitious programs to continue to invest into that. And that's what we aim to do.
You were looking at shale exploration in Barmer, what is the update there?
Shale oil and gas has worked very well in other parts of the world, particularly in North America and other places. And this is about exploiting the source and we have some very interesting opportunities to do that here in Rajasthan. But it's early stages. It's like an exploration play. We need to test whether it works. We've drilled our first well and it looks encouraging, so we're planning further steps. But this is one of the longer-term opportunities that we have but we intend to exploit it. But as I say, we have many other opportunities to grow our business as well.
Given that oil prices are on the weaker side of $75, does it impact your decisions on shale?
We have a portfolio of opportunities to invest in. I anticipate around two-thirds of our capital spend looking forward will go into near-term development opportunities, which provided more or less very short-term production results, and then around a third of our capital spend to go into more exploration, longer-term opportunities. I classify shale as an unconventional opportunity. So we will invest in both.
Have you earmarked funds for acquisitions, both in India as well as outside?
We will always look at acquisitions but my view is the best way to create value in the oil and gas business is through the subsurface and being successful in exploiting the resource base that we have, and the exploration. And so the number one priority is to maximise the value and opportunity, both for the government and people of India in the asset base that we have, but also for our shareholders. And if the right acquisition opportunity comes along that we can do it at the right price, and those are the sorts of things we will look at too.
Last year you signed contracts for about eight fields under the Discovered Small Fields auctions. What's the status there?
We are studying those opportunities and we will move the ones forward that we can make happen. And I reviewed one yesterday. We have our Cambay field in Surat and one discovered small field, or two of them, actually sit near it. And we have plans to move the development of those forward, and we're starting the engineering work. And it's the same on all the other blocks. We're continuing to study. It's early days. But when we move them to a point of being ready to commit to the project, then we will do it.
How would the windfall tax on oil in India impact Cairn? Do you see such taxes negatively impacting India’s E&P sector?
You need to look at the various contracts that we have. And we have some older PSC contracts, which are structured actually as high oil prices are there for the government to take more. And I think they're fair in that respect. And so we've been in discussion with the government around the windfall tax, and I'm hopeful that they will reconsider and take that away.
You know, really what's important is to create a climate for long-term investment into the industry. And I think the government in India has done a lot of good work around the new exploration blocks to create that environment to attract investment. And as we invest in some of the older contracts it gets harder and harder and more and more expensive to produce oil, and we just need to create a climate that allows that investment to happen.
While companies like yours plan a longer vision of increasing capacity, how do you juxtapose this with the energy transition that's happening in India as well as the world over?
It's a really good question. We fully embrace the energy transition and the need to move to forms of energy, and also to decarbonise our oil and gas production, which is really important. But I think when you look at it, this doesn't get to happen overnight. And what's really important is that we maintain stability and provide affordable and secure energy to Indian consumers over decades that we're going to be needing it and hopefully that is produced at home. That is our aim as a company.
The demand for fuels is shifting to non-fossil fuels, so as an oil producer how do you transition that and what is the long-term map? And in terms of business, what would be the other portfolios that you can look at?
I think oil and gas will be used in the material form of energy supply for decades in India, whatever scenario we look at, not just in India but around the world. But what's really important is we do it in a way that we reduce carbon for every barrel or molecule produced in gas. And that's what we're about. We have an aggressive plan to reduce our emissions and we're doing some really good things.
You know, for example, we use a lot of power in Rajasthan and what we've done is recently committed to some solar power, which will replace the power we take out of the grid, which is coal-fired power. And so it's more sustainable, of course. But it's actually lower cost. So it's really good business for us. We're doing other things around… many other things actually, and another good example is that we've committed to planting 2 million trees, we've done around 600,000 of them. And that's another area where we think we can reduce our footprint as a business. So our aim is over time that we significantly reduce the amounts of carbon that we emit as a company in the production of our barrels, which is just absolutely the right thing to do.
The journalist was at Cairn’s unit in Barmer, Rajasthan last week at the company’s invitation.
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