ONGC, Cairn battle over capex of new exploration activities

Once Vendanta acquired Cairn, it was believed that relations between ONGC and Cairn were going to be calm and the contentious royalty issue had been sorted out. However, there now seems to be a new area of disagreement between the two companies, reports CNBC-TV-18’s Nayantara Rai. 

Also read: Cairn likely to produce 2.4 lakh/bpd output in FY14 There has been a policy change recently when Veerappa Moily took over as the petroleum minister. He said that even after the mining lease of any oil block is over, a company should be allowed to carry out exploration activities. As far as that goes, ONGC says it doesn’t want to share the capex when such new exploration activities are carried out. Meanwhile, Cairn says the production sharing contract (PSC) stipulates that ONGC has to share 30 percent of the capex that is incurred. A middle ground could be reached as Cairn is offering to take the entire risk of the new exploration. In case there is a discovery then ONGC should share 30 percent of the capex for development of that discovery.